Dakin v. Bayly, 290 U.S. 143 (1933)

DAKIN, RECEIVER, v. BAYLY, LIQUIDATOR.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT.

No. 44. Argued October 20, 1933.—Decided November 20, 1933.

to the depositors of the collection items in the forwarding bank, held that the forwarding bank was not entitled to set off, in a suit against it on a debt owed by it individually, an asserted cause of action in its own right based on the drafts. Distinguishing Bank of the Metropolis v. New England Bank, 1 How. 234. Pp. 149, 152. 63 F. (2d) 592, reversed.

Certiorari , 289 U.S. 722, to review a judgment affirming a judgment of the district court allowing a set-off in an action by the receiver of a national bank.

Messrs. Donald C. McMullen and George B. Springston, with whom Messrs. F. G. Await and George P. Barse were on the brief, for petitioner.

Mr. Melvin A. McMullen, with whom Mr. Thomas Hamilton was on the brief, for respondent.

By leave of Court, Messrs. George P. Barse and John F. Anderson filed a brief on behalf of the Comptroller of the Currency, as amicus curiae.

Mr . Just ice Roberts delivered the opinion of the Court.

This was an action on the common counts and on an account stated brought in the United States District Court for Northern Florida by the receiver of First National Bank of St. Petersburg, Florida, against the Peoples Bank of Clearwater, Florida, a state bank. In addition to pleas of the general issue, the defendant pleaded specially that the St. Petersburg bank was indebted to the defendant in a sum in excess of plaintiff’s claim, by virtue of the delivery to defendant of four drafts drawn by plaintiff on the Chase National Bank of New York to the defendant’s order, which had been dishonored.

Much is made of the absence of any showing that the Clearwater bank did not credit the depositors in account immediately on receipt of the items for collection; but, in the absence of evidence to the contrary, we must assume the relation was what the statute made it—one of mere agency rather than one of debtor and creditor. As was said in the Malloy case, the effect of the statute might

8 “ When a check, draft, note or other negotiable instrument is deposited in a bank for credit, or for collection, it shall be considered due diligence on the part of the bank in the collection of any check, draft, note or other negotiable instrument so deposited, to forward en route the same without delay in the usual commercial way in use according to the regular course of business of banks, and the maker, endorser, guarantor or surety of any check, draft, note or other negotiable instrument, so deposited, shall be liable to the bank until actual final payment is received, and when a bank receives for collection any check, draft, note or other negotiable instrument and forwards the same for collection, as herein provided, it shall only be liable after actual final payment is received by it, except in case of want of due diligence on its part as aforesaid.” Compiled General Laws of Florida, § 6834.

be avoided by agreement or by clear and certain custom known to the depositor; but no such agreement or custom was pleaded by the defendant. The replication asserts the checks were deposited with the Clearwater bank for collection and were forwarded to the St. Petersburg bank for collection and remittance, and the defendant’s demurrer admits these averments. On this record we are bound to hold that the St. Petersburg bank stands in the relation of agent to the individual depositors of the items, and is liable to them for failure to remit cash or equivalent in satisfaction of the amounts collected. The Clearwater bank must therefore sue as representative or agent of depositors; for a recognition of its right to sue as owner would destroy the cause of action of the depositors against the St. Petersburg bank, or leave that bank subject to a possible double liability. If the cross-demand is asserted in an agency capacity, the debts are not held in the same right by the two banks, lack mutuality, and the one cannot be set off against the other; if it is asserted by the Clearwater bank as owner of the drafts, the demand cannot be maintained, for the reason that no showing is made that the agency relationship was altered to that of debtor and creditor.

The respondent, however, seeks to support the judgment on another ground. He says that the Clearwater bank accepted the drafts, forwarded by the St. Petersburg bank, as payment, thus assumed ownership of them, acknowledged the change in the relationship to its depositors from that of collecting agent to that of debtor, and so properly pleads the off-set. We think this position cannot be maintained.

“ We do not perceive any difference in principal between an advance of money and a balance suffered to remain upon the faith of these mutual dealings. In the one case as well as the other, credit is given upon the paper deposited or expected to be transmitted in the usual course of the transactions between the parties.”

But here we have no credit extended by the St. Petersburg bank to the Clearwater bank on the faith of the checks forwarded for collection, and no mutual deposit

Stone , J., dissenting. 290 U.8.

accounts, but a mere agency evidenced by a collection letter requiring collection and remittance. The fact that no credit was extended to the forwarding bank by the collecting bank, leaves it open to the depositor to assert his claim against the latter even though it had no notice that the relation between the depositor and the forwarding bank was one merely of agency. See Sweeny v. Easter, 1 Wall. 166; Beaver Boards Cos. v. Imbrie & Co., 287 Fed. 158, 163.

The respondent was not entitled to set off an asserted cause of action in its own right based on the drafts drawn by the petitioner. The suggestion that the petitioner’s demand was for the amount of checks the Clearwater bank had collected and failed to remit is beside the point. If the petitioner was for that or any other reason not entitled to sue in its own right, the fact would only be a further reason for denying the set-off.

The judgment must be Reversed.

Mr . Justice Stone , dissenting.

I think the judgment should be affirmed.

From the pleadings it appears that the checks were deposited with the Clearwater bank by its customers, in the usual course, for collection, and were forwarded by it, in turn, to the St. Petersburg bank for collection; that the St. Petersburg bank collected the checks and paid the amount of the collection to the Clearwater bank by the drafts in question, made payable to its order. The two banks had each, for a long time, been sending drafts and checks to the other for collection and remittance, and the demand of the St. Petersburg bank, to which the counterclaim was interposed, was for an amount similarly due for items which had been collected for it by the Clearwater bank. It is not shown what credits were given by the Clearwater bank to the depositors for the checks when received, or that any of them were restrictively endorsed, or that in the transactions between the two banks either appeared to the other to be acting otherwise than as owner of the checks which it forwarded for collection. See Douglas v. Federal Reserve Bank, 271 U.S. 489. On the argument it was conceded that all were endorsed without restriction. There is no allegation that the Clearwater bank ever held the drafts, received from the St. Petersburg bank, as agent for its depositors, and none that the depositors ever asserted such an agency, or that they have made any claim to the drafts. Whether or not, in the usual course of business, it credited its depositors with the amount of the drafts on their receipt is not revealed.

But even if we are to say, on this record, that the depositors were entitled to claim ownership of the drafts in the hands of the Clearwater bank, they have not done so, and the St. Petersburg bank may not assert for them an interest in the drafts which they are not bound to assert, and have never claimed, for themselves. Unless Federal Reserve Bank v. Malloy, supra, on which the opinion of the Court relies, is to be overruled, neither the St. Petersburg bank nor the Clearwater bank could treat the depositors of the latter as owners of the drafts, without their consent. In that case, which arose under the statute of Florida involved in the present case, the bank had received paper restrictively endorsed for collection from another bank, which had received it from its customer. In turn it forwarded the paper to another bank for collection, from which it took a draft, payable to its own order, in payment of the collection item. This Court held that the bank received the paper as agent to collect it, but that in receiving the draft as payment instead of legal tender, the forwarding bank acted outside its agency. Hence it could not treat the owner of the paper sent for collection as the owner of the draft which it had thus wrongfully received, without his consent or ratification. Here the rights of the Clearwater bank upon the drafts had accrued before the receivership of either bank. What their rights then were they continued to be unless they were altered by some act of its depositors. Ownership of the drafts was not in suspension. It had already been lodged in the Clearwater bank by its own unauthorized act. Some affirmative act of ratification or adoption was necessary by its customers before the wrongful act of the Clearwater bank could be relieved of its consequences and before the burden of ownership, acquired by it in its own right because without authority, could be transferred from it to its depositors. Allowance of the counterclaim

Stone , J., dissenting. 290U.S.

upon the drafts, like payment of them before such an act of adoption, obviously could not result in double liability of the St. Petersburg bank, since the payment or allowance would be made to the one entitled to receive it.

Not only has petitioner failed to sustain the burden of showing that the depositors of the Clearwater bank, or any of them, have asked or consented to be treated as owners of the drafts, or otherwise adopted the act of the Clearwater bank, but it appears that it would be to their disadvantage to do so. We need not close our eyes to the obvious fact that the only possible advantage sought in behalf of the St. Petersburg bank by resistance to the counterclaim—the benefit of a distribution by the Clearwater bank to creditors larger than that of the St. Petersburg bank—is identical with the advantage which the depositors will retain by treating the Clearwater bank as their debtor, instead of asserting ownership in the unpaid drafts. In the circumstances, to speak of the Clearwater bank as suing upon its counterclaim as an agent and as not bearing the burden of ownership, is to speak in terms of legal fiction, not of reality. Notwithstanding our judgment denying to the Clearwater bank the right to counterclaim upon the drafts because the ownership of them is not in it but in its depositors, the depositors, if they have not already done so, are free to prove their claim against the Clearwater bank as a debtor, because they have never become owners of the drafts. The Clearwater bank, then, has no choice but to bear the burdens of ownership of the drafts, which it has received and retains as owner. It should equally be entitled to the benefits. These include the right to set up the drafts as a counterclaim to its indebtedness to the St. Petersburg bank.

Counsel for Parties. 290 US.

JOHNSON OIL REFINING CO. v. OKLAHOMA ex rel . MITCHELL, COUNTY ATTORNEY OF PAWNEE COUNTY, et al .

Nos. 22, 23, and 24. Argued October 17, 1933.—Decided December 4, 1933.

An Illinois corporation owned a fleet of tank cars used mainly in transporting oil from its refinery in Oklahoma for delivery in other States. Upon making such deliveries the cars usually would be returned to this refinery pursuant to directions accompanying them on their outward trips. The refinery had trackage for a small part of all the cars and facilities for making minor repairs upon them; but the cars were almost continuously in movement, and each, on the average, was out of Oklahoma from twenty to twenty-nine days each month. Held:

1. That while the cars had acquired a situs outside of Illinois—the domicile of their owner—for the purpose of state taxation, the mere fact that the refinery where they were loaded and reloaded was in Oklahoma, did not fix the situs of the entire fleet in that State. P. 161.

2. Jurisdiction of Oklahoma to tax such property must be determined on a basis consistent with the like jurisdiction of the other States in which the property was habitually employed. P. 162.

3. Oklahoma’s share for taxation could be determined by taking the number of cars which on the average were found to be physically present there. P. 163.

162 Okla. 185; 19 P. (2d) 168, reversed.

Appeals from judgments of the Supreme Court of Oklahoma sustaining property taxes on railway tank cars. The proceedings were by appeal, through intermediate courts, from the action of the taxing authorities.

Mr. A. A. Davidson, with whom Messrs. Charles Y. Freeman, J. F. Dammann, and Preston C. West were on the brief, for appellant.

Mr. Ed Waite Clark, with whom Mr. J. Berry King, Attorney General of Oklahoma, was on the brief, for appellees.

Mr . Chief Just ice Hughes delivered the opinion of the Court.

These cases present the question of the validity of property taxes laid in Pawnee County, Oklahoma, under the state statute, upon the entire fleet of appellant’s tank cars. The challenge in each case was under the due process clause of the Fourteenth Amendment of the Federal Constitution upon the ground that the cars did not have their situs within the State and hence that the State had no jurisdiction to tax them. The taxes in Nos. 22 and 23 were on 380 cars for the years 1925 to 1928; in No. 24, on 381 cars for the year 1931. The assessments in Nos. 22 and 23 were made by the county treasurer and upheld by the County Court. In No. 24 the assessment was made by the local board of equalization and was reduced by the District Court of the County to an assessment on 64 cars, which that Court held to be the average number present in the County on any one day during the year. The three cases (with a fourth, which is not before us, from another County) were consolidated for hearing on appeal in the Supreme Court of Oklahoma. That Court sustained the assessments on the entire fleet of cars, thus affirming the judgment of the County Court and reversing the judgment of the District Court. 162 Okla. 185; 19 P. (2d) 168. The cases come here on appeal.

Appellant, Johnson Oil Refining Company, is an Illinois corporation having its principal office in Chicago, and its refinery at Cleveland in Pawnee County, Oklahoma. The Supreme Court of the State reached the conclusion that all the cars had their “ taxable situs ” at the latter place. As the asserted federal right turns upon the determination of the question of situs, it is our province to analyze

Opinion of the Court. 290 UK

the facts in order to apply the law, and thus to ascertain whether the conclusion of the state court has adequate support in the evidence. Beidler v. South Carolina Tax Comm’n, 282 U.S. 1, 8.1

The essential facts are not in dispute. The tank cars are operated in transporting refined products from appellant’s factory at Cleveland, Oklahoma, to various points of delivery throughout a large part of the United States. They are almost exclusively engaged in interstate commerce. They are very infrequently used in connection with an oil plant appellant owns in Illinois. They are sometimes loaded at refineries located in States other than Oklahoma. The cars are stenciled “ When empty return to Johnson Oil Refining Company, Cleveland, Oklahoma,” or “Johnson Refining Company, Cleveland, Oklahoma,” and with each shipment go instructions to return the car to Cleveland. The cars are thus billed back to Cleveland unless ordered to another point. At that place appellant has repair trackage, which can accommodate from 12 to 15 cars for minor repairs, and maintains such a stock of materials as can be utilized for repairs outside of a railroad shop. Besides the above-mentioned repair trackage, appellant has trackage at Cleveland with a capacity for about 67 cars.

The cars are almost continuously in movement. Returning to Cleveland to be reloaded, the cars remain on the tracks from twenty-four hours to ten days, depending on the season of the year and the volume of products handled. They are on the tracks for reloading purposes twenty-four hours. Each of the cars makes about one

1 Kansas City Southern Ry. Co. v. Albers Commission Co., 223 U.S. 573, 591-593; C reswill v. Knights of Pythias, 225 U.S. 246, 261; Northern Pacific Ry. Co. v. North Dakota, 236 U.S. 585, 593; First National Bank v. Hartford, 273 U.S. 548, 552, 553; Fiske v. Kansas, 274 U.S. 380, 385, 386; Ancient Egyptian Order v. Michaux, 279 U.S. 737, 745; Sterling v. Constantin, 287 U.S. 378, 398.

and one-half trips every thirty days, that is, “ each car is loaded at the Cleveland refinery, sent to the point of delivery, returns to the Cleveland plant, is reloaded and sent out again to a point of delivery each thirty days.” Each car is outside of Pawnee County and the State of Oklahoma from twenty to twenty-nine days out of each month. It was variously estimated at the trial in No. 22 that the daily average number of cars in Pawnee County during the years 1925 to 1928 was between 37 and 66. The agreed statement of facts in No. 24 states that that daily average during the years 1929 and 1930 was 64; that is, about 16 per cent, of the cars owned by appellant were in Pawnee County and about 84 per cent., on a daily average, were “ somewhere in transit outside ” of that County.

Although rolling stock, such as these cars, is employed in interstate commerce, that fact does not make it immune from a nondiscriminatory property tax in a State which can be deemed to have jurisdiction. Marye v. Baltimore & Ohio R. Co., 127 U.S. 117, 123; Pullman's Car Co. v. Pennsylvania, 141 U.S. 18, 23; American Refrigerator Transit Co. v. Hall, 174 U.S. 70, 82; Union Refrigerator Transit Co. v. Lynch, 177 U.S. 149, 152; Union Tank Line Co. v. Wright, 249 U.S. 275, 282. Appellant had its domicile in Illinois, and that State had jurisdiction to tax appellant’s personal property which had not acquired an actual situs elsewhere. “ The State of origin remains the permanent situs of the property notwithstanding its occasional excursions to foreign parts.” See New York Central & H. R. R. Co. v. Miller, 202 U.S. 584, 597; Southern Pacific Co. v. Kentucky, 222 U.S. 63, 69. But the State of the domicile has no jurisdiction to tax personal property where its actual situs is in another State. Union Refrigerator Transit Co. N. Kentucky, 199 U.S. 194, 209, 211; Western Union v. Kansas, 216 U.S. 1, 38; Frick v. Pennsylvania, 268 U.S. 473, 489. While, in this instance,

it cannot be doubted that the cars in question had acquired an actual situs outside the State of Illinois, the mere fact that appellant had its refinery in Oklahoma would not necessarily fix the situs of the entire fleet of cars in that State. The jurisdiction of Oklahoma to tax property of this description must be determined on a basis which is consistent with the like jurisdiction of other States.

Applying these principles, no ground appears for the taxation of all the cars of the appellant in Oklahoma. It is true that the cars went out from and returned to Oklahoma, being loaded and reloaded at the refinery, but they also entered and were employed in other States where the oil was delivered. Oklahoma was entitled to tax its proper share of the property employed in the course of business which these records disclose, and this amount could be determined by taking the number of cars which on the average were found to be physically present within the State.

The judgments of the Supreme Court of Oklahoma are reversed and the causes are remanded for further proceedings not inconsistent with this opinion.