text:
    No. 13,194.
    Pullis Bros.' Iron Company vs. Parish of Natchitoches et al.— Ruston State Bank, Intervenor; Illinois Supply & Construction Company vs. Parish of Natchitoches et al.— Ruston State Bank, Intervenor, (Consolidated); in re Ruston State Bank, Intervenor, Applying for Certiorari or Writ of Review to the Court of Appeal, First Circuit, State of Louisiana.
    Syllabus.
    A contractor having engaged to construct a courthouse, and pledged his contract to a bank with full subrogation of his lien and privilege In order to obtain» advances of money to carry same to completion, and subsequently bought materials for the construction of the edifice, upon terms of credit, in other States than Louisiana, which were actually used therein, the furnishers of materials are entitled to preference in receiving, payment over the bank as assignee, irrespective of the place where the contract for materials was en tered into — they having made out and served attested accounts upon the proper parochial authorities in pursuance of Revised Civil Code, 2772.

      L. E. Thomas for the Intervenor.

      Scarborough & Carver for Pullis Bros/ Iron Company and Illinois-Supply and Construction Company, Plaintiffs.
    Respondent judges pro se.

    Submitted on briefs May 20th, 1899.
    Opinion handed down June 22. 1899.
    Rehearing refused June 30th, 1899.
   The opinion of the court was delivered by

Watkins, J.

The following statement of facts has been extracted from the brief of the intervenor’s counsel, viz;

“In June, 1895, P. J. Gillen contracted with the police jury of “Natchitoches parish to erect a court-house for $20,555.00. On July “2nd, 1895, he made arrangements to get $14,000.00 from Ruston “ State Bank, to pay on said work, and executed a notarial assignment “ or pledge of all his rights as mechanic and contractor on said eourt- “ house,' which was duly recorded on November 13th, 1895. Ou “ August 19th, 1895, he contracted with plaintiff, Illinois Supply and “ Construction Company, for pressed brick for the building at $12.00 “per M., delivered f. o. b. cars, St. Louis, Mo., amounting to $14,- “ 000.00, which contract was made simply by letters, and was never “ recorded.

“In November, 1895, he ordered from Pullis Bros. Iron Company “some iron work for court-house, without privilege of inspection, “ also by letter, and io be delivered also at St. Louis, Mo.

“On April 23d, 1896, Gillen failed, after having spent $20,000.00 “ on the court-house, and the contract was relet to one C. D. Stewart, “ for $11,600.00.

“On May 27th, 1896, plaintiffs gave president of police Jury an at- “ tested account, and also recorded their claim the same day. Gillen owed the Illinois Supply and Construction Company $563.34, and Pullis Bros. Iron Co., $219.00. In September, 1897, these suits were brought, and the parish was garnisheed for what might be due Gil“len, he being a non-resident. There is no denial of the debt.

'“The Ruston State Bank intervened and set up that plaintiffs had “no lien, as it was a Missouri contract, and under the laws of their •“ own State, they had none. Further, that by virtue of their assign- “ rnent recorded, they were entitled to be paid in preference to plain- “ tiffs anyway, which contention on the part of the bank was sanctioned by the judge a quo, and judgment rendered accordingly, “ which judgment was reversed by the Court of Appeals, and this ap- plication was then made.”

These two cases are presented together for convenience of argument, as both plaintiffs are domiciled in St. Louis, M.o., and the law applicable to one, is equally applicable to the other.

Jt appears that these two cases were decided in the District Court '-intfavor of the intervenor, but on appeal to the court of respondents, •that judgment was reversed, and one rendered in favor of the plaintiffs.

Relator assigns as error on the part of respondents, the following, to-wit:

1st. In holding that the plaintiffs are entitled to a lien and privilege as material men on the court-house of Natchitoches parish, for materials used therein, the contracts for same having been entirely made and executed, and the property delivered in a State different from Louisiana, and whose laws accord nojien to material men who .furnish material to public buildings, on the ground that same is contrary to public policy.

2nd. In holding that plaintiffs had a privilege or lien on said courthouse, because a privilege is a right which the nature of the debt or ■contract gives the creditor to be paid by preference, and, as in this case, the contract was made and executed in Missouri, it must have .an effect given to it by the law of that State — a privilege being one of the effects of a contract given in special cases by particular laws, and must be strictly construed, and can not be extended to eases not coming within the special protection of the law of Louisiana.

3rd. In holding that plaintiff’s lien had effect on said building, same not having been recorded in the parish where the property is situated, within fifteen days after the debt was contracted, as the law requires.

4th. In holding that notwithstanding a foreign material man who furnishes material in another State and has no lien against the building, has yet a right to serve attested accounts and hold the parish under Revised Civil Code, 2772.

5th. In holding that an assignee of a principal contractor for a valuable consideration made before engagements with material men had been made, and prior to the presentation to the owner of their attested accounts, and prior to the recordation thereof, can not contest with such material men for priority of payment out of the proceeds of the balance due the contractor by the owner.

Relator states that respondents “have made a very full -statement of the facts in this case in the opinion filed herewith, which we adopt;” consequently, we need not go outside of the recitals of fact contained 'in the opinion of the respondent judges, and may safely take the ■statement therein contained as our guide.

We make the following recapitulation from the opinion of the respondents, to be taken in connection with the foregoing statement of facts made by counsel:

(a) On the 4th day of June, 1895, Gillen contracted with the parish of Natchitoches to build a court-house for the price of $20,-555.00,' payable $2500.00 when the foundation was laid, and the remainder as fast as same was produced by a one-mill tax, which had been levied on the property of the parish.

On the 8th d,ay of June following, Gillen gave Bond for the completioii of the building in accordance with the contract and. specifications which had been recorded on the 4th day of June, previous. He proceeded with his contract until the 23rd day of June, 1896, when, by reason of his inability to complete his contract, the same was forfeited, and in pursuance of clause 13 of the contract, the job was re-let to C. D. Stewart, for completion of the building, in conformity with the contract with Gillen, and for the price and sum of $11,600.00.

On October 17th, 1896, Gillen filed suit in the United States Court against the parish for $14,734.00, as a balance due him, and which resulted in a judgment in his favor for $7,700. This judgment was-rendered on February 1, 1898, and was immediately afterward assigned to the intervenor, and notice given to the parish of Natchitoches.

(b) On July 2d, 1895, P. J. Gillen, contractor, by notarial act, assigned to the Ruston State Bank, intervenor herein, all of his contract rights as collateral security, for a loan of $14,000 in cash, to be made to him to enable him to build and construct said court-house, and to secure the same, subrogated said bank to his privilege as contractor on; said building, and authorized it to collect the money due him by the parish, as it became due.

This contract was duly recorded in the parish of Natchitoches on November 13, 1895.

(c) On November —, 1895, Pullis Bros. Iron Oo., in pursuance of a previous contract, furnished Gillen with material, which -was used in the construction of the court-house, the balance due on which account is $219.54.

On the failure" of Gillen to pay balance due for material, said company caused an attested account to be made out in conformity with the-provisions of Article 2772 of the Civil Code, and served it on the parish on February 14, 1896, and caused same to be recorded on May 12, 1896.

On August —, 1895, Gillen contracted with the Hlinois Supply and Construction Co., for pressed 'bricks, which were to be shipped to him from September, 1895, to January, 1896, and which" were used in the-building of the court-house, with the exception of about $100; the-balance remaining unpaid being $563.84.

That company served notice by an attested account on the parish' May 26, 1896, and caused same to be recorded on same day.

The two plaintiffs filed suits on September 7th, 1897, against Gillen,. proceeding by attachment, he being a non-resident, and the parish was made party thereto, by garnishment proceeding.

To the suit of Illinois Supply Co., the defendant filed answer and admitted the purchase of the brick, but alleged that a lot of same were rejected by the architect, to the value of $124.00; and in reconvention, he set up a large claim for damages.

To the case of Pullis Bros.’ Iron Company, he plead a general denial.

On May 4th, 1898, the Ruston State Bank filed an intervention in each of the foregoing cases, in which it alleged an indebtedness by Gillen to it of over $16,000.00, on account of the foregoing assignment, less a credit of $7,700, it being the amount of the judgment Gillen had obtained against the parish, and which had been transferred to it.

That the gontract made with Gillen to supply him with means to construct the court-house proceeded on the theory that Ee did not, himself, have the means to carry same to completion, and that it was to advance him the necessary means to enable him to construct the building and to pay for the labor and material necessary therefor. It asserted the privilege of the parish to Gillen as contractor, and its assignment and subrogation thereof to his lien and privilege against the building, and as being, thereby, fully authorized to collect the amount due from the parish in pursuance of its recorded claim, and the notice which had been given to the police jury thereof.

That the moneys which it had furnished Gillen had 'been used in the construction of said building and in making payments for labor and materials furnished and used in the construction of said courthouse, and that it has a valid pledge and lien on said court-house for the reimbursement thereof.

It also makes claim for the sum of $7,700.00, the amount of judgmen t against the parish, which Gillen had, likewise, assigned as in the case of the Illinois Supply Company.

And, finally, intervenor claims, that its assignment from Gillen was recorded long anterior to the furnishing of material by the plaintiffs, and that they had full notice of same; and, consequently, it Is entitled to be paid in preference to them.

In other words, we have for consideration the proposition, that the intervenor is entitled to preference in payment from the parish, by virtue of its contract of assignment with subrogation from Gillen as contractor, over the material men who furnished materials which were used in the building of the court-house.

The foregoing statement of facts discloses, that the assignment from Gillen to the bank'was made on July 2nd, 1895, and recorded November 13, 1895. That material was furnished by Pullis Bros. Iron Company, on November —, 1895, in pursuance of a previous agreement,, the date of which is not given, and that it caused an attested account to be made out and served on the police jury on February 14,1896, and same was duly recorded on May 12, 1896.

That material was furnished by the Illinois Supply and Construction Company in August, 1895, and an attested account was made out and served on the parish on May 26, 1896, and recorded on the same day.

Therefore, we have it clearly established by the record that the assignment from Gillen to the bank was made and recorded prior in date to contracts having been made by Gillen with Pullis Bros. Iron Company to furnish materials, and, necessarily, used in the construction of the court-house; and that said contract of assignment was piioi in date to the contract between Gillen and the Illinois Supply and Construction Company to furnish materials, though n0t recorded until a month or two afterwards.

The respondents make the following presentation of the intervenor’s claim:

That it is entitled to be paid by preference to plaintiffs, out of the amount due on the court-house by the parish, for the reasons:

1st. That it has a written pledge for money actually used for paying labor and material used in said court-house, the assignment having been recorded before the plaintiffs furnished any material.

2nd. That plaintiffs have no privilege whatever against said building as furnishers of material, and the amount due Gillen should be decreed to be paid intervenor first, as holding a pledge on same, as well as a lien on the building; said plaintiffs' contracts for furnishing material being Missouri contracts, whereas by the constitution and laws of that State, no lien or privilege attaches to public buildings in favor of material men.

Further, respondents return that the plaintiffs’ response to the intervention is, among other things, that under the contract, Gillen, as contractor, was required to furnish bond and security, and that the stockholders of the bank, interveners, became his sureties, and that they acted for and in behalf of the bank; and, therefore, the bank is estopped from competing- with plaintiffs out of the amount to be paid for the courthouse.

It appears from the opinion, that the demáhd of the Southern Terra Cotta Works was rejected, and the claim of the intervenor for $7,700, as the amount of the judgment Gillen had transferred to it, was recognized.

In this suit, the controversy is simply one between the intervenor and the two creditors claiming for material furnished as to the right of priority of payment.

The first question for examination is, whether the plaintiffs had m lien on the court-house as the furnishers of materials used in the building.

On this proposition the opinion of the court propounds these questions :

“First. Are the plaintiffs entitled to a lien on the courthouse, as furnishers of material used in the building, the contracts for the same having been made in foreign States, whose laws accord no lien to material men who furnish material used on public buildings?

“Second. (Have) such material men (the right) to serve attested accounts on the owner of the building, as provided, by Article 2772 of the Civil Code, and (is it) the duty of the owner to retain the amount (thereof) for the benefit of the person so furnishing the material ?

“Third. Has an assignee of the contractor before the furnishing of said material, and prior to the presentation to the owner of the attested accounts, the right to contest with such material men for priority of payment from the proceeds of the balance due the contractor by the owner?

The respondents declare that the Article 2772 of the Civil Code i's-plain and unambiguous, and accords the same privilege to furnishersof material to be used in the construction of a building, as is given to the contractor; but that the contention of intervenor’s counsel is,, that the plaintiffs are not entitled to the lien of material men, for the reason that the contract for same was made in the State of Missouri, whose laws do not permit liens on public buildings.

It is conceded that the.laws of Missouri where the contracts were-apparently made, do not recognize such liens on public buildings.

“Intervenor’s contention on this point is based on the well known-principle, that sales made in States whose laws do not recognize -vendor’s privileges, do not carry such into other States (to which) the ¡property is subsequently removed.

“The vendor’s lien and privilege pertains to the nature of the contract, and can only be enforced in this State upon movables, according to the lex loci contractus; provided, always, that we have by the lex fori the remedy^ which is invoked.

“The case is entirely different with reference to a contract for material, made in a foreign State. The lien accorded by our laws in favor of material men is purely statutory, and has no relation to the .original nature and character of the contract. The lien attaches by reason of the use of the material in the construction of the building, •■and does not depend upon any contract between him and the owner.

“Cohn vs. Hager, 30 Ark., 28; Lumber Co. vs. Gottschalk, 81 Cal., 641; 22 Pac., 860; cited by Boisat on Liens, Sec. 247.

“It is the destination and use of the material in the erection and •■construction of the building that confers the privilege and this inci.dent does not adhere in the original contract, but is limited and fixed :by the use of the material. The privilege attaches to public buildings -in this State. Schwartz vs. Saiter, 40 Ann., 264.

“Our conclusion is, that the right of lien must be tested by the laws •of this State, where the work is done, or the material used. Any other view would lead to the most manifest injustice, and would be wholly subversive of the humane theory and policy of our laws.

“This construction is not only sanctioned by the plain letter of the code, but is in harmony with the construction placed on like statutes by the courts of other jurisdictions.”

Counsel for the plaintiffs in their brief, put the proposition this way:

■“The main issue in the case is, whether the Ruston State Bank claiming merely as assignee of Gillen, the contractor, and standing in ;his shoes, can take the money due by the parish to Gillen for building the court-house by preference over material men to whom Gillen is indebted, for materials used in said court-house, and this too, when it •does not appear that the bank ever notified the parish authorities of the assignment — the material men, though, having duly notified the parish of their claims, as reqiured by C. C., 2772, and having also attached the money in the hands of the parish by garnishment process.”

' A careful scrutiny of the opinion of the respondents and their statement of the pleadings, fails to disclose that any point was made to ■the effect that the parish did not have notice of Gillen’s assignment to the bank; on the contrary, the general tenor of the discussion leads ■us to the conclusion that the parish had been duly advised thereof.

There is nothing in the statement of facts by the respondents to show at what particular date these supplies of materials were contracted for, nor when they were used in the building; but it does appear therefrom that the contracts made between the plaintiffs and Gillen were entered into in the State of Missouri, and that the materials were subsequently transported to Louisiana, and used in the building.

Counsel for the plaintiffs suggest as an estoppel against the claim of the intervenor that the “assignment made by Gillen to the bank must have been set aside, for, in October II, 1896, Gillen brought suit in the federal court in his own name and on his own acocunt, against "the parish for the balance due him on the building contract.”

But the fact disclosed by the record is, that judgment was obtained on that claim, and same was immediately assigned to the intervenor.

Instead of that transaction evidencing any abandonment of the contract of assignment, it seems to us to confirm it. The contractor assigned to the bank his entire claim against the parish as collateral security for funds advanced, and he was, in duty, bound to collect from the parish the amount due him, as the parish had declined to pay, and had set aside his contract.

Under this state of facts, the bank was powerless to collect from the parish, and its rights could only be protected by Gillen’s suit and .judgment.

TVe do not understand the intervenor’s counsel to claim that the bank had any lien or privilege upon the building for monies advanced to pay laborers, or for material used; on the contrary, we understand that the claim of the bank is purely derivative, and rests upon an assignment made by the contractor with subrogation.

In other words, that the bank is seeking to enforce the lien and privilege of the contractor against the building whose lien and privilege are undoubted.

On this hypothesis, the question in controversy is, whether the plaintiffs as material men shall be paid in preference to the claim of the contractor, which has been assigned to the bank.

All parties in this case assert liens and privileges against the courthouse building, and the building alone. There is no question in regard to any of.the parties having a lien or privilege upon the ground upon -which the building rests. Consequently, the case of Schwartz vs. Saiter, 40 Ann., 264, and McKnight vs. Parish of Grant, 30 Ann., 361, may be left out of view.

The contention of counsel for plaintiffs is — and that which the respondents’ court maintained was — that the lien of material men does-not attach until the materials are put in the building, and that, for this reason, the place where the contract was made may be left out of view; and also the decisions of the Texas and Missouri courts in support of that proposition.

Counsel for the plaintiffs have discussed these questions very elaborately and interestingly, but, in our view, the issue must be settled and determined by the provisions of the code.

They are as follows:

“Architects, undertakers, bricklayers, painters, master builders, con- “ tractors, sub-contractors, journeymen, laborers, cartmen and other “ workmen employed in constructing or repairing houses, buildings or “ mailing other works; those who have supplied the owner or other “person employed by the owner, his agent or sub-contractor, with “ materials of any kind for the construction or repair of an edifice or “ other work, when such materials have been used in the erection or “ repair of such Houses or other works,” have a privilege on immovables. R. C. C., 3249.

The foregoing is supplemented by the further provision, that the “ above named parties shall have a lien and privilege upon the build- “ ing, improvement, or other work erected, and upon the lot of ground “ not exceeding one acre, upon which the building, improvement or other work shall be erected.” Ibid.

This article is found in the chapter which treats “Of Privileges on Immovables.”

The further provision of law is, that “architects, undertakers, brick- “ layers, master-builders, painters, contractors, sub-contractors, “journeymen, laborers, cartmen, masons and other workmen em- “ ployed in constructing, rebuilding or repairing houses, buildings, or “making other works; those who have supplied the owner or other “person employed by the owner or his agent or sub-contractor, with “ materials of any kind for the construction or repair of his building or other works; those who have contracted, in the manner provided “ by the police regulations, to make or put in repair the levees, bridges, canals and roads of a proprietor, preserve their privileges, only in so- far as they have recorded, with the recorder of mortgages, in the parish where the property is situated, the act containing .the bar- “ gains they have made, or a detailed statement of the amount duly attested under the oath of the party doing or having the work done,. “ or acknowledgement of what is due to them by the debtor.

“The privileges mentioned in this article are concurrent.” Rev. Civil Code, 3272.

This article occurs in the chapter which treats of “How Privileges are Preserved and Recorded.”

The further provision is, that “privileges are valid against third persons from the date of the recording of the act or evidence of indebtedness as provided by law.” Rev. Civil Code, 3273.

The further provision is that “no privilege shall have effect against “ third persons unless recorded in the manner required by law in the “parish where the property to be affected is situated.” Rev. Civil-Code, 3274.

From the foregoing provisions we find, that contractors, sub-contractors and persons who have furnished materials to the owner or other persons employed for the construction of an edifice, have a privilege upon the building “when such materials have been used in the erection or repair of such houses or other works.”

That such privileges are preserved by having them recorded in the manner required by law. That- is, by the registry of the contract containing the bargains that have been made-, or detailed statement of amount due, attested under oath of the party doing the work.

But the law declares that the privileges mentioned — that is to say, the recorded privileges mentioned — in this article, are concurrent; that is to say, concurrent inter se. The law further declares, that such privileges are valid against third persons from the date of recording the act.

Therefore, the important question is, whether the intervenid’ is a third person in contemplation of the law.

The intervenor’s standing in court is precisely the same as that of a contractor, or‘of material men who have furnished supplies to the building.

Just here, it is well to observe that the opinion of the respondent-, propounds this question, to-wit:

“The practical question is, does this assignment have the legal effect- ■“ of diverting the funds of the contractor, fastened in the hands of the parish by the material men by service of their attested accounts, and give the transferee of the contractor the right of payment by '“ preference ?”

And then proceeding to answer that question, the respondents say:

“We take the law to be so well settled, that the assignee' of a chose “ in action, stands exactly in the shoes of his assignor, succeeding to “ all of his rights and privileges, but acquiring no greater right than “his assignor had in the thing assigned, is such a familiar rule of “ j'ursprudence, that it is scarcely necessary to cite cases in support of its enforcement. * * * * * * * *

“Now, suppose Gillen was the intervenor in this case, endeavoring •to defeat the claims of the plaintiffs, it is clear that the courts would turn a deaf ear to his demands.

“This assignment only confers the right on the intervenor to receive and collect all monies due him, said Gillen, which they (the police jury) may pay on the construction price of said court-house as their (the bank’s) interest may appear, as provided by Section 9 of the contract.

“The pertinent question arises: What amount is due Gillen on the construction price of the building? As we have seen that the amount of plaintiffs’ claim has been extra judicially sequestered, as it were, in the hands of the police jury, under Article 2772 of the Civil Code, they are legally hound to withhold this amount from the total amount due him. Otherwise the parish would bo liable for the sums thus due.

“The balance due by the parish to Gillen on account of said contract is liquidated by the judgment of the federal court of $7,700, and from this amount must be deducted all legal and valid claims again at {he court-house.”

In our view, the provisions of Article 2772 of the Revised Civil Code clearly establish the position assumed by the respondents; for, the provisions of the code previously' cited are, necessarily, subordinated to the special provisions of the article last cited, which is found in the chapter, “Of Constructing Buildings, According to.Plots, and Other Works by the Job, and of Furnishing Materials.” The provisions of that article are, that “every mechanic, workman or other person doing '“or performing any work towards the erection, construction or finding “ of any building erected under a contract between the owner and '“builder, or other person * * * whose demand for work and “ labor done and performed towards the erection of such building has- “ not been paid and satisfied, may deliver to the owner of such build- ing an attested account of the amount and value of the work vhus- “ performed and remaining unpaid; and, thereupon, such owner shall retain out of his subsequent payments to the contractor the amount ' “ of such work and labor, for the benefit of the persons so performing- “ the same.”

And a further provision of that article is, that “all the foregoing “ provisions shall apply to the person furnishing materials of any kind: “ to be used in the performance of any work or construction of any “ building, as well as the work done and performed towards such build- “ ing, by any mechanic or workman; and the proceedings shall be bad “ on the account duly attested, of such person furnishing materials, “ and the same liability incurred by, and enforced against the con- “ tractor or owner of such building, or other person, as those provided “for work or labor performed.

“If, by collusion or otherwise, the owner of any building erected by “ contract as aforesaid, shall pay to his contractor any money in ad- “ vanee of the sum due on the contract, and if the amount still due the “ contractor after such payment has been made shall be insufficient to “ satisfy the demand made for work and labor done and performed, “ or materials furnished, the owner shall be liable to the amount that' “ would have been due at the time of his receiving the account of such. “ work, in the same manner as if no payment had been made.”

The evident purpose of the legislature was, to furnish a special remedy in favor of mechanics, workmen, and the furnishers of material, whereby they could subrogate the claims of the contractor to-the satisfaction of their own claims by preference, either against funds in the hands of the owner, or against the building constructed.-

This is made clear by the following provisions, to-wit:

“Workmen and persons furnishing materials, who have contracted with.the undertaker, have no action against the owner who has paid him. If the undertaker he not paid, they may cause the moneys due him to he seized, and they are of right subrogated to his privilege.”' Rev. Civil Code, Art. 2773.

“The payments which the proprietor may have made in anticipation to the undertaker, are considered, with regard to workmen and to those-who furnish materials, as not having been made, and do not prevent them from exercising the right granted them by the preceding article.” Rev. Civil Code, 2774.

In our view, these articles of the code are so clear and emphatic, that it is unnecessary to examine the jurisprudence of this State, or that of other States on the question.

Under the provisions of our law, the privilege of a material man .springs into existence when the materials have been used in the erection or construction of a building. Nothing is said in the statute with regard to where the contract is made; nor does that appear to be nt all material to the issue.

The proof in this case is clear, that the plaintiffs furnished materials to Gillen, contractor, which were used in the construction of the court-house, and that as against the contractor, service of the atxested accounts on the parish as owner, subordinated his claim thereto, .and likewise that of the intervenor.

Entertaining this view, we are of the opinion that the judgment of the respondent is correct, and that the relator’s demand can not be .sustained.

It is, therefore, dismissed at his cost.


source: Caselaw Access Project

author: Watkins, T.

license: Public Domain

text:
    No. 12,947.
    F. L. Richardson, Receiver American National Bank, vs. Frank Watson.
    Syllabus.
    In fase llie president and cashier of a bank unite and co-operate together in abstracting and misapplying its funds, and in order to accomplish their purpose and secrete their transactions from the board of directors, the note of a friend with fictitious collaterals attached, is obtained and placed in the portfolio of the bank, the bank is not bound thereby, as said officers acted for themselves, personally, and not for the bank; but the maker of such a note is bound to the bank, notwithstanding it was without consideration a3 to him.
    ON APPEAL from the Civil District Court for the Parish of Orleans. Monroe, J.

      Frank N. Butler for the Plaintiff and Appellee.

      N. L. Tullís for the Defendant and Appellant.
    Argued and submitted March 7, 1899.
    Opinion handed down April 3, 1899.
    Rehearing refused Tune 27, 1899.
   The opinion of the court was delivered by

Watkins, T.

This is a suit upon a promissory note by the receiver of the American National Bank.

It is for the sum of $17,500, and bears date May 25, 1895. It is made payable to the order of the bank on December 24, 1895.

At the foot of the note, and above the signature of the maker, are listed certain securities as having been pledged for its payment, and the prayer of the petition is for the recognition and enforcement of this pledge; but another person having filed an intervention, making claim thereto, the plaintiff filed an amended petition in which he abandoned all claim thereto as security -for said note.

Upon the reverse of said note are certain credits endorsed, indicating certain payments to have-been made in discharge of interest, and partly extinguishing the capital of same, and apparently reducing it to the sum of $12,859 — mention of which is made in the petition as having “apparently reduced” the capital of the note to that sum, and for which amount judgment is claimed — but the defendant in his answer, amongst other things, denies any knowledge, possession, or ownership of said collaterals.

The answer of the defendant is as follows, viz.:

“That he signed said note in blank at the request of Walter W. “ Girault, who was cashier, and one of the directors of the American “National Bank of New Orleans at the time of said signing; that no “ consideration whatever was received by defendant for said note; ■“ that it was purely an accommodation note, and known to be such by “ said bank, its officers, agents and employees.”

Defendant further “avers, that said bank gave no consideration for “said note, has never negotiated it, and is not entitled to recover “ thereon, etc.”

He “further avers that, as to the pledge of the stock of the Stafford “ Mineral Springs and Hotel Company, Limited, made to secure the “ payment of said note, he was entirely ignorant, until after the fail“ure of the said bank, as he, also, was of the credits endorsed “ upon said note, and of all matters connected with it, after his signa- “ ture had been attached to it.

“That said note was delivered by him to said Girault, immediately “ after signing it; and that all dealings and transactions, of which it “was the basis, were conducted by the officers, agents and employees “ of said bank, without (his) knowledge, consent, or approval, and “ he can not be bound thereby.”

On the trial there was judgment in favor of the plaintiff for the amount demanded; and after an unsuccessful effort to obtain a new-trial, the defendant has prosecuted a devolutive appeal therefrom.

The following statement is quoted from the brief of plaintiff’s counsel, viz.:

"Henry Gardes, president of the American National Bank, used “ about thirty thousand ($30,000) dollars of said bank’s money in a “ disastrous speculation, in his own name and for his own account.

“W. W. Girault, cashier of said bank, aided and abetted said “ Gardes in this misappropriation of the funds of said bank, and, in order to enable him to withdraw said funds from the bank, without "the knowledge of its hoard of directors, he (Girault) obtained from “ defendant, Watson, and from one Higginbotham, sundry notes, “ signed in blank, which Girault filled to the amount of about thirty-“five thousand ($35,000) dollars. These notes were entered by the “note clerk, under Girault’s instructions, in the discount offering “ books of the bank, as so much paper acquired with the funds of the “ bank, apparently in the due course of business; and they were there- “ after carried in the portfolio of said bank as the property and assets “ of said bank.

“Instead of using the money, thus apparently drawn from the funds “ of the bank, to pay Watson and Higginbotham, for their aforesaid “ notes, Gardes and Girault appropriated the same in 'margining up’' “ on the aforesaid speculation in Louisiana State Bonds.

“In order to give further appearance of regularity to the directors- " of said bank, said Gardes and Girault attached to said notes certifi- “ cates of stock in the Stafford Mineral Springs and Hotel Company, “ Limited, which had been pledged by Henry Mordecai as security for “his indebtedness to said bank.

“The directors had no knowledge that the Watson notes were ac- “ commodation paper. On the contrary, they were led to believe, from the bank’s books, and from the representations of Gardes and “ Girault, that they had been acquired, in due course of business, for “ full value, with the money of said bank.”

Thereupon, counsel submits the. following as his contentions, viz. t

, I.

“We contend:

“That the bank having thus parted with its money, and having thus “ acquired the note sued on, without any knowledge on the part of its “ board of directors that it was accommodation paper, had the right “ to enforce payment of said note, notwithstanding the fact that the “maker did not receive any consideration therefor.

IT.

“That when the president and cashier of a bank unlawfully coiu“bine and confederate to appropriate its money in a speculation for “ their own account, they are acting for themselves, and not for the "bank; they are not the agents of the bank in such a transaction, and “ the bank has a right to recover on paper placed in its portfolio to “ cover up said unlawful appropriation of the funds of said bank.

III.

“That the knouiedge of the president and cashier that the notes “they have used in thus unlawfully abstracting the bank’s money, “were accommodation notes, can not be held to be the knowledge of “ the bank, if the board of directors were not advised that said notes» “were accommodation notes.

IY.

“Such an independent fraud, on the part of the president and “ cashier of a bank, is beyond the scope of their employment, and the “ law will not presume that they did inform the bank in the premises.” The statement of the defendant’s counsel is as follows, viz.:

“The note which forms the basis of the present suit was signed by “ the defendant at the request of Walter W. Girault, cashier of the “American National Bank, of New Orleans, now represented by tbe “ plaintiff, a receiver appointed by the Comptroller of the Currency,

“It was signed in blank by Watson, at tbe request of Girault, who :Sent for him for that purpose.

“Prior to the signing- of the note — namely, on June 20, 1894, — the “ defendant had signed other notes of the same character, except in “ two respects; that the first batch of notes were not pledge notes, and the name of the bank was printed in the blanks, payable to the “ bank when signed, and the amounts were filled afterward, but the “ payee’s name was there in print.

“It should be constantly kept in mind, that in the whole series of “notes, the bank was made the immediate payee.

'“It is abundantly shown that the notes were accommodation paper “ pure and simple; defendant’s testimony upon this point is clear and “ emphatic, and is fully corroborated by Girault in his testimony in “chief. (Rec., pp. 21, 34.)

“The modus operandi by which the maker of a note receives or is “ credited with the proceeds of its discount was carefully set forth by “ an illustration of the methods of bank book-keeping, accompanied -“by exhibits from the books of the bank, appearing in the form of appendices to the record. These exhibits conclusively negative the theory of Watspn’s having received any consideration for the notes, ■“and that proposition is not contended for; but the record just as “effectually destroys the plaintiff’s contention, as expressed in the ■“ second and fourth paragraphs of his syllabus, that the notes were “used in unlawfully abstracting the bank’s money, or that the bank ■ “ acquired the notes by parting with its money.

“The record fails to show that the bank parted with anything of value upon the faith of the notes. They were, so to speak, ex post 'Jacio notes, the first series, aggregating $15,000, having been given ■“ after the losses incurred in State bonds and other transactions, and ‘“the note now sued on having been used principally to take up the ‘“other notes. All the transactions concerning these notes are eviiU deneed by entries upon the books of the bank, which, as a matter of «right, were open to inspection by its board of directors.”

On the part of the receiver, the insistance is that the president of the bank used and misapplied a large amount of its funds in disastrous speculation for his own account; that the cashier aided and abetted the president in this misappropriation of the funds of the ■Jbank.

That, in order to enable the president to withdraw said funds with■out the knowledge of the hoard of directors, the cashier obtained from .the defendant, and one Higginbotham, sundry notes signed in blank, which he, subsequently, filled out; and that in order to give those notes the appearance of perfect regularity to the directors, said president and cashier, upon their own motion, attached thereto certificates ■of the stock of the Stafford Mineral Springs and Hotel Company, Limited, which had been previously pledged to the bank by Henry Mordecai, as security, for his indebtedness to the bank.

That those notes were, by the cashier’s instructions, entered in the «discount offering book of the bank, as so much paper which had been Required with the funds of the bank, and, apparently, in the due course of business of the bank; and he, likewise, caused same to be ■carried in the portfolio of the bank as property and assets of the .bank.

On this state of affairs the plaintiff’s counsel contends that the 'board of directors had no knowledge that the defendant’s note was .accommodation paper, but, on the contrary, believed, and had a perfect right to believe, that it had been acquired by the bank in the due .and legitimate course of business.

Hence, in point of fact, they assumed that it was held by the bank for a valid and adequate consideration.

That, admitting for the argument, that the note was executed and ■delivered to the cashier of the bank, without any consideration on the part of the defendant as maker/ it did not evidence a transaction with the bank, but was given for the personal accommodation of the cashier and president, by means of which they, under the circumstances related, abstracted funds from the bank illegally, and for purposes of speculation, in diametrical opposition to the interest of the 'bank, and without the knowledge of its board of directors.

The defendant must have known of the questionable character of the transaction in question, as well as of others of similar character, for the reason that he states .that the note sued on was signed by him in blank, at the request of Girault, the cashier, who, afterwards, filled up the blanks. That Girault sent for him for that purpose. That prior to the signing of this note — namely, on June 20, 1894,— he “had signed other notes of the same character.”

His testimony, and the course of his dealings with the cashier of the bank, shows a perfect familiarity, on the part of the defendant, -with the use to which his notes had been applied.

It does not require proof to demonstrate the irregularity of a transaction by which a person goes to a bank at the request of its cashier, and signs, in blank, a note for $17,500 without any explanation, and without receiving one dollar of consideration; and it seems to our minds, equally clear, that the maker of such a piece of paper becomes-liable to the bank for the amount of funds that the cashier and president thereof were enabled to abstract therefrom, without the knowledge of its board of directors.

In a certain sense, the bank is a third person quoad hoc, who has parted with value upon the faith of the note and collaterals thereto attached; the cashier and president acting for themselves, in their own interest, and not as the agents and officers of the bank.

True it is that the bank, through its board of directors, did adopt the acts of the cashier, but the board acted upon the apparent regularity of the transaction, and without knowledge of the deceit that the president and cashier of the bank had practiced upon them.

In Seixas vs. Citizens’ Bank, 38th Annual (at page 435) — quite a similar case to the instant one — the court said:

“That; as a general rule, the knowledge of an agent is the knowl- “ edge of the principal. And even where an agent deals in a double “ capacity, for his principal and himself, at the same time, and where “ his acts are evidently designed and intended to benefit o.r favor “the principal to his own prejudice, or that of his creditors, even in “ such case his knowledge of his condition, or other material fact, will “ be regarded as the knowledge of the principal.

“But where such agent seehs his own personal interest or advantage-“in the affair, ivithout "benefit to his principal, then his hnowledge " can not be held to be the hnowledge of the principal(Our italics.)

The principal question in that' case was whether the hank was held' bound by the acts and knowledge of its president; and the conclusion of the court was, that it was not.

And this conclusion was reached after great deliberation, and notwithstanding that the court found the following facts, viz.:

“But still it is beyond question that Mr. Garriere did deliver to the- “ cashier, as stated, certain designated securities, with the positive “ instruction to retain them for the bank on account of, or as security “ for the overdraft.”

In that case no wrong-doing or fraud was imputed to either the president or cashier of the bank, and the transaction was, to all ap-~ pearances, in the usual course of the business of the bank; yet the court held the bank was not bound by the knowledge of its president, because quoad hoc, he was acting in his own interest. ,

For a much stronger reason should we hold, upon proof of the •president’s acts of abstraction and misapplication of the funds of the bank, and the cashier’s guilty cimplicity in the transaction, that their dealings with the defendant did not bind the bank and thus absolve the latter from all liability on his note.

The knowledge of the president and cashier was not knowledge of the bank.

The bank lost its funds; and the note of the defendant furnished a means for its concealment from the directors, and enabled the president and cashier to accomplish their design.

In our opinion, the defendant is liable to the bank for the amount demanded of him; and our learned brother of the lower court thus held correctly.

Judgment affirmed.

Nonroe, J., having decided this case in the lower court, takes no ■part in the decision on the appeal.