Opinion
No. 31355.
February 18, 1935. Suggestion of Error Overruled March 18, 1935.
1. BANKS AND BANKING.
Bank, which made advances on drafts accepted, subject to drawee's payment, for collection and credit, acquired only a lien on drafts or proceeds and not ownership thereof; and hence depositor could recover proceeds, after bank became insolvent, from collecting agent for bank on showing that lien had been discharged.
2. BANKS AND BANKING.
Lien on drafts or proceeds acquired by bank as result of advances made to depositor on drafts accepted, subject to drawee's payment, for collection and credit, was discharged where depositor's balance from time drafts were deposited until collected exceeded amount of drafts; and hence proceeds of drafts, collected by agent for bank after bank became insolvent, were depositor's property and not part of assets of bank.
APPEAL from the chancery court of Sunflower county.
HON. J.L. WILLIAMS, Chancellor.
Suit by the Mississippi Cottonseed Products Company against the Canal Bank Trust Company and others. From a judgment in favor of defendants, plaintiff appeals. Reversed and decree entered.
Moody Johnson, of Indianola, for appellant.
Our contention is that the advance, which the application of the rule establishes, is but a loan made by the bank to the depositor and is secured by a lien on the drafts, deposited for collection, and the proceeds thereof, and that the bank, by virtue of the advance, does not acquire the ownership of the drafts.
The rule, referred to in the opinion of the Chancellor, "the first money in is the first money out" is applicable and can only be applied when the issue is as to whether, by virtue thereof, the bank acquired ownership of the paper or a lien thereon for the amount of the advance. Hence, as against a third party, it is immaterial whether the bank acquires ownership or a lien. In either case, as against a third party, the bank is a holder in due course. But, as against the depositor, it is not immaterial whether the bank acquires ownership or a lien.
Bank of Gulfport v. Smith, 95 So. 785; National Bank v. Gibson, 105 Wn. 578, 179 P. 117, 6 A.L.R. 247; Branham v. Drew Grocery Company, 111 So. 555; Capital National Bank of Jackson v. Peoples Bank Trust Company, 148 So. 386.
It is no doubt true that some courts have held that, by virtue of the advance, the bank as against the depositor acquires the ownership of the draft deposited. Yet this court has not so held. To the contrary this court, with full knowledge of the holding of other courts, has expressly held otherwise.
Love, Sup't. of Banks, v. Kraft-Phoenix Cheese Corp., 139 So. 393; Shawmut Bank v. Barnwell, 140 Miss. 816, 105 So. 462.
A lien on a thing is vastly different from the ownership thereof. In its broadest sense and common acceptation a lien denotes a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation.
37 C.J. 306; Elson v. Barner, 56 Miss. 394, 396.
As a lien is a mere security for a debt "a lien is discharged by a proper and sufficient payment of the debt or obligation which it secures.
37 C.J. 339, sec. 61.
Cooper Thomas, of Indianola, for appellees.
When the bank gave full value therefor, and cashed checks against the drafts in an amount equal to and in excess of the amount of said drafts, then it became the owner and purchaser thereof, for value.
Bank of Gulfport v. Smith, 95 So. 785; Love et al. v. Kraft Phoenix Cheese Corp., 139 So. 393.
Should this Honorable Court fail to adopt the position or contention of appellees herein, that the bank of deposit became the absolute owner of the drafts at the instant when checks were cashed against said drafts in an amount equal to the total of said drafts, then, for an alternative position, we cannot see why the said bank did not become a purchaser of said drafts or the proceeds thereof on the instant the drafts were collected, even though the bank is regarded as an agent who has made advances against the object of his agency up until the drafts are collected.
National Shawmut Bank v. Barnwell, 105 So. 462; Love etc. v. Fulton Iron Works, 140 So. 528; Bank of Gulfport v. Smith, 95 So. 728; Ole National Bank v. Gibson, 179 P. 117, 6 A.L.R. 247; Dreilling v. First National Bank, 43 Kans. 197, 19 Am. St. Rep. 126; Capital National Bank v. Peoples Bank Trust Company, 149 So. 383.
It is an elementary principle of law that an agent has a lien for any advances made by him in regard to a particular action in which he is an agent, if he makes these advances to or in favor of his principal. This lien is not discharged or lost by virtue of the death, if an individual, of the principal, or the bankruptcy or insolvency, if an institution, of said principal.
2 C.J. 803, sec. 473; 2 C.J. 798, sec. 462.
This Honorable Court has held that on the collection of the proceeds of drafts against which advances have been made to the depositor, by the bank of deposit, as between the bank of deposit and its depositor, the bank becomes the owner and holder for value and the proceeds do not belong to the depositor, even though at all times thereafter, the depositor keeps a balance in excess of the amount of the advances made in said bank of deposit.
Branham v. Drew Grocery Company, 111 So. 155.
Appellant, Mississippi Cottonseed Products Company, instituted this suit by way of an attachment in chancery against the Canal Bank Trust Company, of New Orleans, La., J.S. Love, Superintendent of Banks in charge of the liquidation of the Bank of Indianola, and certain resident defendants alleged to be indebted to the said Canal Bank Trust Company. Upon the execution of a surety bond conditioned to pay the amount of any decree that might be rendered against the said nonresident bank, the defendants, who were alleged to be indebted to it, were discharged, and the trial of the cause resulted in a decree dismissing the bill of complaint as to the remaining defendants.
The facts disclosed by the record, which are undisputed, are substantially as follows: On December 11, 1931, the appellant, trading under the name of Sunflower Cotton Oil Company, deposited with the Bank of Indianola three drafts for two hundred dollars each, with bills of lading attached, drawn on E.T. Allen Co., of Atlanta, Ga. At the bottom of the original deposit ticket upon which these three items were listed were the words, "Credited subject to rules and regulations on back of duplicate," while on the back of the duplicate ticket it was provided, among other things, that all checks and drafts were credited subject to payment, and that if the collecting agents or correspondents should convert the proceeds or remit in checks or drafts which were dishonored, the amount for which credit had been given would be charged back to the owner or depositor.
In the consideration of the questions presented, we will accept the statement of counsel for the respective parties that the drafts in question were deposited for "collection" or "collection and credit," which under the facts of this case are in legal effect the same. When these three drafts were deposited, the appellant was given immediate credit for the amount thereof, and they were forwarded by the Bank of Indianola to the Canal Bank Trust Company, its New Orleans correspondent, for collection. The items were received by the Canal Bank Trust Company on December 14, 1931, and were forwarded to the First National Bank of Atlanta, for collection. They were received by the Atlanta bank on the morning of December 16, 1931, and were presented to, and paid by, the drawee on that date. On the same day the Atlanta bank credited the Canal Bank Trust Company with the proceeds of the drafts and notified it of that fact, and on December 29, 1931, the Canal Bank Trust Company in turn applied the amount of said drafts as a credit on a note owing by the Bank of Indianola to it.
On December 16, 1931, the same day the drafts were collected by the Atlanta bank, the Bank of Indianola was closed for liquidation. In the meantime, after the amount of the drafts in question was placed to the credit of the appellant with the Bank of Indianola on December 11, 1931, by applying the rule, "the first money in is the first money out," the entire amount of the drafts was checked out. But additional deposits, largely in excess of appellant's balance on December 11, 1931, after the drafts were credited to it, were made, and at the close of business each day from December 11, 1931, until said bank was closed for liquidation, the account of the appellant disclosed an indebtedness owing to it by the Bank of Indianola largely in excess of the aggregate amount of the drafts.
The record discloses that the Bank of Indianola did not open for business after December 15, 1931, and it is admitted that it was closed for liquidation on December 16, 1931, the day the drafts in question were collected. It is asserted throughout appellant's brief, and not controverted by appellees, that the drafts were collected after the said bank was closed for liquidation, and therefore that the relation of principal and agent existed between appellant and appellees, at the time the drafts were collected, will be treated as an accepted fact, unless, as contended by appellees, that relation was terminated when the Bank of Indianola, under the doctrine of "the first money in is the first money out," permitted the appellees to withdraw the amount of these deposits. To state the contentions of the respective parties in another way, the appellant contends that when the Bank of Indianola credited the drafts subject to payment and advanced an amount equal to the amount of the drafts, it only acquired a lien on the drafts and the proceeds thereof, which was discharged by subsequent deposits equal to and in excess of the amount of the drafts; while the appellees contend that when the bank advanced to appellant the amount of the drafts, before the collection thereof, it became a purchaser for value of the drafts and acquired the ownership thereof.
Under the doctrine that "the first money in is the first money out," which is recognized by numerous decisions of this court, it was clearly established that the entire proceeds of the drafts were withdrawn before the collection thereof, and it is equally well established that continuously from the time the drafts were deposited until the bank closed for liquidation, and until the drafts were collected, the appellant, by additional deposits, maintained a balance in the bank in excess of the amount of the drafts. That the bank of deposit acquired only a lien on the drafts and proceeds thereof when it accepted the drafts for collection, or collection and credit subject to payment, and permitted the withdrawal of the amount of the drafts before collection thereof, is a necessary conclusion from the language of the court in the case of Love v. Kraft-Phoenix Cheese Corp., 162 Miss. 460, 139 So. 393, 394, wherein it was said that: "When commercial paper is deposited with a bank for collection only, and thereafter the bank cashes checks drawn against the paper deposited before it has been collected, the bank thereby acquires either (a) the ownership of the paper deposited, or (b) a lien thereon for the amount advanced the depositor. While there are authorities to the contrary, the first of these results is not, but the second is, in accord with the law of agency, under which an agent in possession, by virtue of his agency, or property belonging to his principal who advances money to his principal for purposes connected with the agency, acquires, not the ownership of the property, but a lien thereon. But aside from this, `It is a well-established general rule that a bank receiving paper for collection has a lien thereon for a debt of the depositor of such paper to the bank, and is entitled to retain such paper as security for the debt, in the absence of contract express or implied, to the contrary.' 6 Michie on Banks Banking, p. 25, sec. 19."
It seems to be the contention of the appellees that by the language above quoted the court did not intend to hold, and did not hold, that the bank which had made advances against the draft acquired only a lien thereon and not the ownership thereof, for the reason that it was there held that, upon the collection of a draft after the bank was closed for liquidation the proceeds thereof to the extent of money previously advanced thereon became a part of the assets of the failed bank. That holding does not in any way militate against the view that a bank making advances against a draft accepted for collection and credit acquires only a lien on the draft or the proceeds thereof for the repayment of the advances, as the proceeds of a draft which were subject to such a lien would become a part of the assets of the collecting bank by virtue of its lien.
The only remaining question is whether or not, under the circumstances of this particular case, the proceeds of the drafts when collected after the bank was closed for liquidation became a part of the assets of the closed bank, or were the property of the appellant free of any lien in favor of the bank to reimburse itself for advances made against the drafts. The record discloses that continuously from the time the drafts were deposited until they were collected, the appellant, by means of additional deposits, maintained at all times a balance in the bank of deposit in excess of the amount of the drafts. And where, at the time of the collection of a draft against which advances have been made, or when it is returned unpaid, the bank is indebted to the depositor in an amount equal to or in excess of the amount of the draft, thereby fully protecting the bank against any loss by reason of advances, we think the lien should be held to have been discharged as a result thereof. Where such facts exist, and, as in the case at bar, the relation of principal and agent continues in force as a result of the collecting bank being closed for liquidation before collection of the draft, we think the proceeds of the draft belong to the depostor and may be recovered from the collecting agents. This view is not in conflict with the holding of the court in the case of Branham v. Drew Grocery Co., 145 Miss. 627, 111 So. 155, wherein it was expressly pointed out that the uncontradicted proof showed that the draft in question was purchased outright by the bank of deposit, which purchase was consummated by permitting withdrawals of the amount of the draft.
The decree of the court below will be reversed, and a decree will be entered here for the appellant for the amount of the three drafts.
Reversed, and decree here.