Opinion
No. 31354.
January 7, 1935. Suggestion of Error overruled February 4, 1935.
1. JUDGMENT.
Mandatory part of decree and not recitals leading to it is controlling.
2. JUDGMENT.
Decree consists of caption, recitals, and mandate, and mandatory part is essential and indispensable.
3. BANKS AND BANKING.
Where mandatory part of decree against bank was simply money decree, it did not award to plaintiff preference over other creditors in pending liquidation of such bank, regardless of what meaning might be warranted by recitals leading to mandatory part of decree.
4. BANKS AND BANKING.
Title to check payable to attorney, showing on face that another was real party for whom it was received, held to vest in attorney, and his indorsement in blank carried title to local bank to which check was given for collection.
5. BILLS AND NOTES.
Where check payable to attorney but showing on its face that another was real party for whom it was received, was indorsed by attorney in blank and delivered to local bank for collection, which in turn indorsed it generally and delivered it to collecting bank, such collecting bank was holder in due course for value without notice; fact that it was payable to attorney carrying no notice (Code 1930, section 3828).
6. BANKS AND BANKING.
Where check payable to attorney but drawn for another was indorsed in blank and delivered to local bank for collection, which indorsed it generally and delivered it to collecting bank with written instructions to collect and credit, collecting bank's duty of agency was discharged to person for whom check was drawn when it credited collection in good faith against local bank.
APPEAL from the Chancery Court of Sunflower County.
Cooper Thomas, of Indianola, for appellants.
Our court is committed to the doctrine that where the owner of a check endorses it and delivers it to a bank to collect and this bank forwards the item for collection and credit, and there is nothing on the check to show that the bank forwarding the item is not the owner thereof, that the bank receiving the items becomes the holder in due course thereof and also a holder for value from the moment it collects the item and credits the forwarding bank.
National Shawmut Bank of Boston v. Barnwell, 105 So. 462, 140 Miss. 816.
The facts in this case insofar as the Indianola bank is concerned do not show a stronger case than that of a man who leaves a check at a bank, with instructions to collect and remit to him the proceeds. Whether the item be called a collection item or whether the item be called one of collection and credit or collection and deposit is immaterial on the question of whether or not the proceeds constitute a trust fund in favor of such party.
Paton's Digest, vol. 1, sec. 1600; Love, etc., v. Fulton Iron Works, 140 So. 528; Love v. Federal Land Bank, 157 Miss. 52, 127 So. 720; Billingsley v. Pallock, 69 Miss. 759, 13 So. 828; Hecker-Jones-Jewel Milling Co. v. Cosmopolitan Trust Company et al., 242 Mass. 181, 24 A.L.R. 1148; 3 R.C.L. 634, sec. 262.
It is our firm belief that the case of Love, etc., v. Fulton Iron Works, 140 So. 528, completely and effectually disposes of the case at bar.
Myers v. Twelfth Ward Bank, 28 Misc. 188, 58 N.Y. Supp. 265, 24 A.L.R. 1112; Hecker-Jones-Jewel Milling Company v. Cosmopolitan Trust Company et al., 242 Mass. 181, 24 A.L.R. 1148; Peterson v. Grasper (Iowa), 118 N.W. 411, 31 A.L.R. 481; Butcher v. Butler, 134 Mo. App. 61, 114 S.W. 564, 31 A.L.R. 475.
The liability under the facts of this case of the Indianola bank to Sam Bianca rose no higher than that of the holder of outstanding exchange, or cashier check or a depositor in said bank.
Mississippi Central Railroad Company v. Conner, 114 Miss. 63.
Allen Allen, of Indianola, for appellee.
Certainly, the intention of the parties in this case could never be construed to authorize a deposit and the relation of debtor and creditor to arise.
3 R.C.L. 624, 632; Alexander County National Bank v. Conner, 110 Miss. 653, 70 So. 827.
Under the decision of the lower court, supported by overwhelming proof, it was held that the Indianola bank was handling the check for collection and that the relation of principal and agent existed. When an agency has been thus established it continues in existence until the fulfillment of the purpose for the creation of such agency.
31 Cyc. 1292; Love, Superintendent of Banks et al. v. Meridian Grain Elevator Co., 139 So. 857, 858, 859.
The case which comports with the rule of reason and which does no violence to, but which upholds and perpetuates those principles of law so long and well established in this state, is the case of Love v. Kraft-Phoenix Cheese Corporation, 139 So. 393, in which case the bank was acting "only as depositors collecting agent," as is true in the instant case, not only by virtue of the instructions given to the bank by me and the special instructions, agreement and understanding had with my client and the bank, but the duplicate deposit slip itself which shows that the bank was acting "only as depositors collection agent" and in no other capacity.
6 C.J. 658, sec. 171; Re Bank of Cuba (1921), 198 App. Div. 733, 191 N.Y. Supp. 88; Morton v. Woolery (N. Dak.), 24 A.L.R. 1107; Armour-Cudahy Packing Company v. First National Bank of Greenville, 69 Miss. 700, 11 So. 28, 31 A.L.R. 485; Blythe v. Kujawa et al., and H.E. Skinner, Receiver, etc. (Minn.), 60 A.L.R. 330.
A trust has been defined to be a holding of property, subject to a day of employing it or applying its proceeds according to directions given the person from whom it was derived.
39 Cyc. 17; Greenfield v. Clarence Savings Bank (Mo.), 5 S.W.2d 708.
The money in this case never belonged to the bank, and certainly cannot belong to appellants. The money at all times being the property of appellee.
Security Savings Bank Case, 217 N.W. 831; Railroad Co. v. Conner, 114 Miss. 63, 75 So. 57; Raynor et al. v. Scandinavian-American Bank et al., 25 A.L.R. 716.
Where a check was left with bank for "collection and deposit" and after forwarding collection bank closed, the check could be recovered by depositor.
National Shawmut Bank of Boston v. Barnwell, 105 So. 462.
A trader or a bank is denominated as insolvent when not in a condition to pay its debts in the ordinary course, as persons carrying on trade or banking usually do. Deposits accepted by a bank with knowledge on the part of its officers that it cannot meet its obligations is a fraudulent act.
Steele et al. v. J.C. Allen, Commissioner of Banks, et al., 20 A.L.R. 1203, 134 N.E. 401; First National Bank v. Strauss, 66 Miss. 479, 6 So. 232; Bank of Hickory v. McPherson et al., 102 Miss. 852, 59 So. 934.
While we have discussed the transaction and the nature of it to show that it was a deposit for collection, yet, it is immaterial what the transaction may have been called by the parties at the time, the law reads into it what it is. Equity looks to substance and not to form, and when the intention of the parties is arrived at, it will declare the result.
Eastern Bank Tr. Co. Case, 52 F.2d 925, 926; Schumacher v. Harriett, 52 F.2d 817; Love, Supt. of Banks et al. v. Kraft-Phoenix Cheese Corporation, 139 So. 393.
It is our view that the Memphis bank, when it accepted the office of agent to aid its correspondent bank, the Indianola bank, in the collection of this check, knowing full well about the provision on the back of the deposit slip and seeing that the check itself was the property of Bianca, that it took this check as our agent under the law and could not come into possession of funds as our agent and use it for any other purpose than to turn it over to us in full as soon as collected.
Pearl River County v. Merchants Bank Trust Company, 151 So. 756, 760; Peoples Gin Company v. Canal Bank Trust Company et al., 144 So. 858, 146 So. 308.
From an adverse decree the appellant the First National Bank of Memphis, Tennessee, and J.S. Love, state superintendent of banks of Mississippi, in charge of the liquidation proceedings of the Merchants' Bank Trust Company of Indianola, Mississippi, prosecute this appeal.
The appellee, Sam Bianca, filed his petition in the liquidation proceedings of the Merchants' Bank Trust Company, which bank was being liquidated under section 3817, Code 1930, wherein he alleged that he was entitled to a preference claim, because the proceeds of a certain check were held by the bank in trust for the petitioner. After the hearing of this case had proceeded to a considerable extent, the petition was amended so as to allow the petitioner, Bianca, to enter suit against the First National Bank of Memphis, Tennessee, as his agent in the collection of that certain check.
It was charged in the petition that the First National Bank of Memphis, which we shall hereafter call the Memphis Bank, had collected a certain check which had been forwarded to it by the Merchants' Bank Trust Company of Indianola, which we shall hereafter call the local bank, and that the two banks had conspired together to defraud him of the proceeds of the check, in that the Memphis Bank had applied the proceeds thereof to the debt of the local bank.
The decree in this case, after reciting the parties in pleading, uses this language: "Is of the opinion, and doth so order that complainant is entitled to the relief prayed for: It is, therefore, the judgment of this court that the petitioner, Sam Bianca, do have of, and recover from, the defendant, J.S. Love, Superintendent of Banks in charge of the Merchants Bank Trust Company of Indianola, Mississippi, in liquidation, and the First National Bank of Memphis, Tennessee, incorporated, the sum of five hundred and ninety-nine dollars and fifteen cents, being the sum of five hundred and thirty-five dollars and legal interest thereon, together with six per cent. interest on said sum from this date until paid, and all costs of this suit accrued, and to accrue, on all of which let execution issue as at law." The amended petition sought preference as to the local bank and a money decree against the Memphis Bank.
In stating the facts of the case, we will assume that the chancellor found from the evidence the following facts: On December 19, 1931, B.B. Allen, of Indianola, an attorney for the appellee, presented a check at the local bank, a copy of which, with the indorsements thereon, is as follows:
"Bank of Clarksdale, 85 — 121 — No. ____ "Clarksdale, Miss. Dec. 17, 1931.
"Julius Ross Bankrupt.
"Pay to the order of B.B. Allen, Attorney $585.00 five hundred eighty five 00/100 dollars for Sam Bianca rent under Sheriff's Levy, Indianola Store —
"Void after 30 days
"Dividend of — per cent.
"Louis Jacobson, Trustee.
"No. 1429." On left-hand side appears: "(No. Protest 85 — 567) "Countersigned:
"William Schmitt, Referee, "By ____, Clerk."
Punched "paid" through center "12/22/31 85 — 121." On back appears: "B.B. Allen, Atty." Stamped:
"Pay to the orde rof Any Bank or Banker, (All prior endorsements Guaranteed Dec. 19, 1931.
"Merchants' Bank Trust Co. Indianola, Miss.
"85 — 567" Also stamped: "Mail:
"All prior endorsements Guaranteed: Pay to the order of Any Bank or Banker, Dec. 21, 1931.
"First National Bank 26 — 2 — Memphis, Tenn. "26 — 2 — H. Craig, Cashier."
Allen stated to the acting cashier of the local bank that he had no authority to make a deposit therein for Bianca, whom he represented as an attorney, but that he was entitled to fifty dollars attorney's fee out of the proceeds of the check, which amount he wanted credited to his personal account; the balance he left with the bank for collection, the money to be paid to Bianca when the check was collected. Thereupon the cashier handed Allen two deposit slips, one issued to the appellee, Bianca, for five hundred thirty-five dollars, and the other to Allen for fifty dollars. The deposit slip so delivered appeared, in form, to be a regular deposit slip. No notation was thereon that it was a deposit for collection only. On the next day, when Allen delivered the deposit slip to Bianca, the latter immediately objected, stating that he did not wish to become a depositor of the local bank, and had not authorized Allen, his attorney, to deposit his money there. Upon complaining to the bank that he wanted the proceeds of the check due him to pay taxes, he was assured by it that the money would be paid to him as soon as the check was collected, and that it would be treated as a deposit for collection. At the same time, he was told that he could draw a check in favor of the sheriff for his taxes, and that the check would be honored out of the funds when collected. He drew in favor of the sheriff, but the payment thereof was refused.
The check reveals that it was indorsed by the payee, "B.B. Allen, Atty.," a general indorsement without restriction, and that the local bank so indorsed it. This check, thus indorsed, was forwarded by the local bank to the Memphis Bank, with a number of other checks, and accompanying them was a letter known in banking circles as "collection and credit instructions." Upon receipt of this check by the Memphis Bank, on December 21, 1931, which was Monday, it credited the deposit account of the local bank with the amount of the check, five hundred eighty-five dollars, notifying the local bank to that effect, and forwarded it to the Bank of Clarksdale, at Clarksdale, Mississippi, the drawee. On December 22d it was collected by the latter bank, and remitted by check, drawn on the Memphis Bank, to the Memphis Bank, which upon receipt thereof, on December 23d, charged the Clarksdale Bank therewith; and thereupon the collection of the check became final. The local bank finally closed its doors and did not reopen for business on Monday, December 28, 1931.
Before the local bank closed, the Memphis Bank notified it of the collection of the check in controversy, but the letter containing the notification was not opened by the local bank officials until after the local bank had suspended operation. The local bank closed for Christmas, which was on Friday in that year, and on Monday following it was formally closed, the superintendent of banks taking charge of it under our statutes; and Bianca was never paid any part of his balance of five hundred thirty-five dollars on deposit with it.
There was never any communication between Bianca and the Memphis Bank until long after the local bank had finally closed. The Memphis Bank had no notice of any kind relative to the check or the transaction between the local bank and Bianca. It appears from the time of its organization, the local bank and the Memphis Bank had been correspondents, that the local bank owed the Memphis Bank in excess of fifty thousand dollars, and that it was the custom of the bank to send its exchange and negotiable instruments to the Memphis Bank for collection and credit.
On the 21st day of December, 1931, at the close of the day's business, the local bank had to its credit with the Memphis Bank, including the check payable to Allen, in excess of six thousand dollars, and, when the Memphis Bank learned that the local bank had closed, there was on credit to its account less than one thousand one hundred dollars, which, after the local bank went into liquidation, was credited by the Memphis Bank on the local bank's indebtedness to it.
1. Counsel for the local bank, who also represents J.S. Love, superintendent of banks, and the Memphis Bank, contends that the decree, the material part of which has been set out, is not in fact a decree for a preference in favor of Bianca against the local bank. It is clear that the mandatory part of the decree is simply a money decree in the same form and with the same effect as that against the Memphis Bank. The mandatory part of the decree controls. The recitals leading to the mandatory part are not controlling. See 21 C.J., p. 657, sec. 843; Griffith's Chancery Practice, sec. 627, which latter authority states that a decree consists of three parts, the caption, the recitals, and the mandate. The mandatory part is essential and indispensable.
We are of the opinion that the decree in this case did not award to Bianca a preference over other creditors in the pending liquidation, and the decree here will recite that no preference is allowed thereby. We therefore do not consider the merits as to whether or not a trust was established in favor of Bianca against the local bank. Appellant Love by his counsel, does not object to the decree if it does not adjudge a preference against him.
2. It is argued that the face of the check, payable to B.B. Allen, attorney, showing that Bianca was the real party for whom the check was received, carried notice to the bank. No authority is cited for this position, and we are of the opinion that the title was vested in B.B. Allen, attorney, and the indorsement by him in blank carried the title thereof to the local bank, and that in so far as the face of the check is concerned, and in all other particulars, the Memphis Bank was the holder in due course for value without notice. The fact that the check was payable to B.B. Allen, attorney, carried no notice to the Memphis Bank. This seems clear now in view of section 3828, Code 1930.
3. It is contended by appellee, in order to uphold the decree, that the local bank was his agent for the purpose of collecting the check, that, when the check was forwarded by the local bank to the Memphis Bank, as its subagent, the latter bank thereby became the agent of the appellee, and that, upon collection of the check by the Memphis Bank, the relation of principal and agent ceased and that of debtor and creditor was established between the Memphis Bank and Bianca. This position is wholly untenable. Under the facts of this case, we are not cited to any authority upholding that view. When the check in the case at bar was collected by the Memphis Bank and credited to the account of the local bank, without any notice of any claim on the part of Bianca, or any one else, the course of dealing between the two banks — the instruction of the local bank in writing to collect and credit — vested the title to the check, upon its collection, in the Memphis Bank. It was guilty of neither negligence nor fraud; it followed the only instructions and information given and had with reference to the check; and, when it had credited the collection in good faith, its duty of agency was discharged to Bianca. On the face of the paper, with the indorsements thereon, it would appear to any one receiving negotiable instruments for collection and credit that the local bank was the owner thereof. Bianca dealt with the local bank with reference to this practice of banks, and his remedy, if any, is against the local bank.
This question is not open in this state. The precise point was carefully considered and set at rest in the case of Continental National Bank of Memphis v. First National Bank of West Point, 84 Miss. 103, 36 So. 189, 2 Ann. Cas. 116. Likewise the rule was announced in National Shawmut Bank of Boston v. Barnwell, 140 Miss. 816, 105 So. 462.
In the case of Continental Nat. Bank of Memphis v. First National Bank of West Point, supra, the syllabus of the case states the rule which the opinion supports, as follows: "A bank receiving checks drawn on it from its correspondent bank, payable to a third bank which had indorsed them in blank, has the right, being ignorant of its correspondent's insolvency and of the fact that it held the checks only for collection, to credit the sums drawn for to its correspondent from whom it received the checks in accordance with the course of uniform dealings between them, and is not liable to the payee in the checks who had sent them for collection to the correspondent bank, since the payee bank by its unlimited indorsement had divested itself of ownership of the checks." In that case the court especially approved the case of American Exchange National Bank v. Theummler, 195 Ill. 90, 62 N.E. 932, 58 L.R.A. 51, 88 Am. St. Rep. 177. The latter case cannot be differentiated from the case at bar.
The doctrine announced in the case of the First National Bank of West Point is based upon the case of the Bank of the Metropolis v. New England Bank, 1 How. 234, 11 L.Ed. 115, and likewise this rule was adopted by the Massachusetts court in the case of Wood v. Boylston Nat. Bank, 129 Mass. 359, 37 Am. Rep. 366.
In the case at bar the title to the check was in Allen, the attorney, who indorsed it in blank and delivered it to the local bank, which, in turn, indorsed it generally and delivered it to the Memphis Bank, which latter bank made collection, and obeyed the literal instructions of the local bank by crediting the proceeds of the check to the local bank, according to its usual course of dealings, thereby making such funds available to the local bank, and thus discharging its agency to all parties concerned, the local bank, the attorney, and the appellee. There was no notice of any claim or equity in the check to the Memphis Bank. When the proceeds of the check were made available to the local bank, the Memphis Bank, both by custom between banks and specific instructions, discharged its agency; there being no negligence on its part in this case. According to this record, Allen had authority to indorse the check as he did — in other words, to collect it. Indeed, the local bank had an interest to the extent of fifty dollars in the check, and there was nothing to advise the Memphis Bank that the local bank did not own absolutely the check in question.
Appellant cites the case of People's Gin Co. v. Canal Bank Trust Co., 168 Miss. 630, 144 So. 858, 146 So. 308, as sustaining the liability of the Memphis Bank. In that case the local bank forwarded its depositor's check to the Canal Bank which sent the check and remittance direct for collection to the drawee bank. The latter bank surrendered the check to the original drawee thereof and undertook to remit its own draft to the Canal Bank, which draft was never paid. The drawee bank bunched the remittance of the proceeds of the check in controversy with a number of others, and upon that fact this court held that the agency of the collecting banks had not been discharged. The check there considered was handled as a collect and remit item, and not as, in the case at bar, a collect and credit item. That case is not here presented.
Since this case was submitted, our attention has been called by appellee to the case of Dakin v. Bayly, 290 U.S. 143, 54 S.Ct. 113, 116, 78 L.Ed. 229, 90 A.L.R. 999. There the court dealt with a statute and a case based on instructions to collect and remit, and adhered to the view here expressed, as announced in the case of Bank of the Metropolis, supra, the court saying: "In that case the forwarding bank, for all that appeared, was the owner of the paper. There was neither contract nor statute to the contrary." The dissenting opinion likewise adheres to the rule announced in the case of the Bank of the Metropolis.
The evidence in this case wholly fails to establish that the local bank received this check from Allen at a time when it was insolvent; and there has been no effort to prove any knowledge of insolvency on the part of the Memphis Bank; in fact, the record discloses that the Memphis Bank allowed and permitted the local bank to continue to draw out funds in a considerable amount between the date of receipt of this check and the date it had notice of the local bank's failure.
The case is reversed, and the petition is dismissed as to the First National Bank of Memphis, and affirmed as to J.S. Love, superintendent of banks, and his successor in office, but is modified to the extent that no preference is allowed by the decree of the lower court.
Reversed in part, and affirmed as modified.