Summary
In Citizens Fidelity Bank Trust Co. v. Kilpatrick, Mo.App., 231 S.W.2d 301, 303, the defendant Kilpatrick had delivered his check for $452.50 to one Wooten, who deposited it in the plaintiff bank and was permitted to withdraw the entire amount.
Summary of this case from University Bank v. MockOpinion
No. 27856.
June 20, 1950.
APPEAL FROM THE ST. LOUIS CIRCUIT COURT, ROBERT J. KIRKWOOD, J.
Milton Keiner, St. Louis, and Bullitt, Dawson Tarrant, Louisville, Kentucky, of counsel, for appellant.
Joseph M. Walsh, St. Louis, for respondent.
This is an action upon a check for $452.50 which was drawn by defendant, R. L. Kilpatrick, against his account in the Mercantile-Commerce National Bank in St. Louis and in favor of one W. C. Wooten of Louisville, Kentucky.
Defendant is a resident of St. Louis, and is engaged in business in that city under the name of R. L. Kilpatrick Company, Commissioners.
On and prior to December 16, 1946, the date of the issuance of the check, Wooten maintained a checking account in Citizens Fidelity Bank and Trust Company, an institution engaged in the general banking business in Louisville.
The balance in Wooten's account varied greatly from time to time, and consisted of only $5.29 when the bank opened for business on December 16th.
On that day Wooten indorsed the check from defendant and deposited the same to his account along with cash in the amount of $47.50, making a total deposit of $500. The deposit slip recited that all items drawn on or payable at other banks were accepted subject to final payment, and that if returns were not received in due course for any reason, such items might be charged back to the depositor.
Later in the day after it had accepted Wooten's deposit, and before the check had been presented to the drawee bank in St. Louis for collection, the Louisville bank permitted Wooten to withdraw the sum of $500, leaving him with the balance of $5.29 which he had had standing to his credit when the bank had opened for business on that day. In other words, the effect of the transaction was to allow Wooten to withdraw the entire uncollected proceeds of the check, and to put the responsibility on the bank of protecting itself according to whatever its rights might be in the event the check was not paid upon presentment to the drawee bank.
On December 19th, three days after the transaction between Wooten and his own bank, a check he had drawn on his bank in favor of defendant was returned to defendant's bank in St. Louis on account of insufficient funds. An earlier check which had been delivered to defendant unsigned had been returned to Wooten for his signature; and on December 19th Wooten was in arrears to defendant in the total sum of $835, representing the aggregate of both such checks.
On that day, that is, on December 19th, defendant gave written notice to his own bank, the Mercantile-Commerce National Bank in St. Louis, to stop payment on the check here in question, and when the check was later presented on December 23rd, payment was refused and nonpayment duly protested.
Demand having been unsuccessfully made upon Wooten for payment of the check, the Louisville bank, proceeding upon the theory that it was the owner and holder of the check in due course, instituted this action against defendant, Kilpatrick, the drawee of the check, in the magistrate court in the City of St. Louis.
Taken on appeal to the circuit court, the case was tried to the court alone upon an agreed statement of facts. Judgment was rendered in favor of defendant; and following an unavailing motion for a new trial, plaintiff bank gave notice of appeal, and by subsequent steps has caused the case to be transferred to this court for our review.
The ultimate question on this appeal is whether the judgment of the lower court was for the right party.
Since the result in the case depends upon the title acquired by plaintiff bank, and since the entire transaction by which the bank acquired the check from Wooten took place in Kentucky, the legal effect of such transaction would ordinarily be judged by Kentucky law. However the parties have not invoked Kentucky law, which means that in such circumstance the case is to be determined by the law of our own state, whether it be the common law or a statute that is to be applied. Noell v. Chicago E. I. Ry. Co., Mo.App., 21 S.W.2d 937.
Defendant argues that plaintiff bank did not become the owner of the check, but merely acquired it as Wooten's agent for collection of the proceeds. The bank insists, on the other hand, that it became the owner of the check, at least to the extent of the amount which it permitted Wooten to withdraw, which, as it happens, was the full amount of the check.
So far as concerns the rule at common law, the courts of the several states have not been wholly in accord upon the question of the title acquired by the bank of deposit in the case of paper received for collection under varying circumstances. Suffice it merely to say that our own state has adhered to the majority rule, 7 Am. Jur., Banks, sec. 452, that when a customer of a bank indorses and deposits a check in a bank, and the bank immediately gives him credit for the amount of the check with the unrestricted right to draw against the same, the bank in that event, and in the absence of an agreement to the contrary, becomes the owner of the check and not the agent of the depositor for its collection. Farmer's Exchange Bank of Marshfield v. Farm Home Savings Loan Ass'n of Missouri, 332 Mo. 1041, 61 S.W.2d 717; Jefferson Bank v. Merchants Refrigerating Co., 236 Mo. 407, 139 S.W. 545; National City Bank of St. Louis v. Macon Creamery Co., 329 Mo. 639, 46 S.W.2d 127; Foristel v. Security Nat. Bank, Savings Trust Co., 320 Mo. 436, 7 S.W.2d 997; Ayers v. Farmers Merchants Bank, 79 Mo. 421, 49 Am.Rep. 235; Cairo Nat. Bank v. Blanton Co., Mo.App., 287 S.W. 839; Mississippi Cottonseed Products Co. v. First Nat. Bank, Mo.App., 142 S.W.2d 1106.
It thus appears that if the case were to be decided according to the rule at common law, the bank would have become the owner of the check by virtue of its act in crediting Wooten with the amount of the check with the right to draw thereon, whether such right was exercised or not. There is no pretense of any contrary understanding between Wooten and the bank; nor is such an agreement to be implied from the fact that the bank had reserved the right to charge the item back to Wooten in the event of its nonpayment. Farmers' Exchange Bank of Marshfield v. Farm Home Savings Loan Ass'n of Missouri, supra; National City Bank of St. Louis v. Macon Creamery Co., supra.
The fact is, however, that the common law rule has been superseded in this state by Section 8174, R.S.Mo. 1939, Mo.R.S.A., sec. 8174, which is a part of the Bank Collection Code adopted in 1929, Laws Mo. 1929, p. 205. That section provides, so far as applicable here, that except as otherwise provided by agreement, where an item is deposited or received for collection, the bank of deposit shall be the agent of the depositor for its collection, and any credit given by any such agent therefor shall be revocable until such time as the proceeds are received in actual money or an unconditional credit is given on the books of any bank, which such agent has requested or accepted. "Where any such bank allows any revocable credit for an item to be withdrawn such agency relation shall nevertheless continue except the bank shall have all the rights of an owner thereof against prior and subsequent parties to the extent of the amount withdrawn."
There can be no doubt that such section has modified the rule previously existing in this state with respect to the title acquired by the bank of deposit when credit is immediately extended to the depositor with the right to check against the same. Unless otherwise provided by agreement between the parties, title to the check no longer passes to the bank upon the mere extension of credit as was true at common law, but instead the statute fixes the bank's relationship as one of agency for the collection of the check, and makes the credit revocable except as to such part of the same as has actually been withdrawn. However there is this to be noted, which is of importance in the decision of the case at bar, that to the extent of the amount withdrawn the bank is given all the rights of an owner against prior and subsequent parties just as it possessed at common law. Farmers' Exchange Bank of Marshfield v. Farm Home Savings Loan Ass'n of Missouri, supra.
It is thus to be seen that despite the substantial change which the code has effected in the general theory of the law as regards the title acquired by the bank of deposit, there has actually been no practical change in the rights of the bank with respect to any part of the depositor's revocable credit which has been withdrawn. We repeat that to the extent of any withdrawal the bank acquires all the rights of an owner against prior and subsequent parties to the check. In this case it was the entire amount of the check which was withdrawn, so that plaintiff bank thereupon succeeded to the rights of an owner with respect to the entire amount of the check, and was entitled to assert such rights against the drawer, Kilpatrick, as a prior party to the check.
Even though the case is to be decided by Missouri law, it is interesting to know that the result would be no different if Kentucky law had been invoked inasmuch as Kentucky has also adopted the Bank Collection Code, and has its own statute, Sec. 357.020, Baldwin's Ky.R.S.A., which, except for certain very minor and inconsequential variances, is the same as our own Section 8174.
Defendant argues, however, that as between himself and plaintiff bank, one or the other of whom must suffer because of Wooten's wrongdoing, the loss should fall upon the bank whose act in permitting Wooten to withdraw the amount of the check before collection has brought about this controversy. In other words, he insists that he should not be penalized because of plaintiff's willingness to make payment to its depositor against uncollected funds, and that plaintiff, having failed to collect the check, should now look for relief to its depositor to whom it elected to advance credit.
Where the law specifically covers the situation, there could be no basis for deciding the case differently upon the assumption that some contrary result would do equity between the parties. But even if the case were to be decided purely on equitable principles, it could at least be urged, just as plaintiff does in fact point out, that it dealt with the check upon the strength of defendant's responsibility as the drawer of the check; that in issuing his check and delivering it to Wooten defendant represented that he had funds on deposit in the drawee bank in St. Louis, and that if the check was not paid by such drawee bank, he himself would pay it; that he placed in Wooten's hands an instrument of credit with the realization at the time that credit might likely be extended by a third person acting in good faith without knowledge of his own dealings with Wooten which afterwards induced him to stop payment on the check; and that having placed in circulation the instrument which directly brought about the loss, defendant in equity and good conscience should be charged with the consequences.
With plaintiff invested with the rights of an owner, it follows that the judgment was for the wrong party and should have been in favor of plaintiff after allowing defendant a credit of $5.29, the amount still remaining on deposit in Wooten's account. In fact plaintiff itself suggests that such credit be allowed.
The Commissioner accordingly recommends that the judgment of the circuit court be reversed and the cause remanded with directions to the circuit court to enter up judgment in favor of plaintiff, and against defendant, according to the prayer of plaintiff's petition after allowing as a credit the sum of $5.29 still remaining on deposit in Wooten's account.
The foregoing opinion of BENNICK, C., is adopted as the opinion of the court.
The judgment of the circuit court is, accordingly, reversed and the cause remanded with directions as recommended by the Commissioner.
ANDERSON, P. J., and HUGHES and McCULLEN, JJ., concur.