Opinion
No. 29106.
January 12, 1931. Suggestion of Error Overruled, January 26, 1931.
1. BANKS AND BANKING. Account maintained by general agent from which agent paid insurance company's obligations and made remittances to home office was account of company.
Where a general agent of an insurance company opens an account with a bank in his name as general agent of the company and does business under said account for a long period of time, paying the obligations of the insurance company within his territory from such funds and making frequent remittance to the home office of the company by means of checks drawn as such general agent on such account for balances due the company, such account is the account of the insurance company and not the personal account of the agent.
2. BANKS AND BANKING. Personal check deposited by agent in principal's account may be charged back, where not paid.
Where an agent having an account as agent, as indicated in the preceding syllabus, deposits personal checks in said account under the circumstances indicated in the preceding syllabus, and such checks are not paid, they may be charged back to the account.
3. BANKS AND BANKING. Bank could not charge against principal's account cash or exchange given agent for agent's personal check drawn upon different account, where proceeds were not used to pay principal's obligations.
Where, as indicated in the first syllabus, an agent has an account of the company he represents, but takes his personal check drawn upon a different account to the bank in which the company's account is kept and indorses said personal check and procures either cash or exchange for his personal check, and such personal check is not paid because of insufficient funds or lack of funds, the bank cannot charge such personal check given, and not indorsed by the company, to the account of the insurance company kept by such agent, but the loss in such case must fall upon the bank cashing such check or giving exchange therefor, where it is not shown that the funds received by the agent for his personal check went to the payment of the insurance company's obligations.
APPEAL from circuit court of Lafayette county. HON. T.E. PEGRAM, Judge.
P.M. Estes, of Nashville, Tenn., and Jas. Stone Sons, of Oxford, for appellant.
The payment of checks when there are no funds of the drawer in the bank constitute a loan, and an agent, without authority, cannot borrow on his principal's credit.
Merchant's National Bank v. Nichols Shepard Co., 223 Ill. 41, 79 N.E. 38, 7 L.R.A. (N.S.) 752.
A bank which permits an unauthorized agent to overdraw his account cannot recover the amount of the overdraft from the principal upon the mere showing that the principal received the proceeds of the overdraft, where, when demand for restitution is made, the principal cannot be placed in statu quo.
Arkansas Valley Bank v. Kelly (1928), 176 Ark. 387, 3 S.W.2d 53, 58 A.L.R. 808; Central Nat. Bank of Baltimore v. Royal Ins. Co., 103 U.S. 78, 26 L.Ed. 459; Case v. Hammond Packing Co., 105 Mo. App. 168, 79 S.W. 732; First Nat. Bank v. Sidebottom, 147 Ky. 690, 145 S.W. 404; Sanborn v. First Nat. Bank, 115 Mo. App. 50, 90 S.W. 1033.
Where a bank on presentation of a check of the depositor pays to the depositor in full the amount deposited for collection, the bank thereby becomes a holder for value of the check and such action constitutes an unconditional sale of the check.
Bank of Gulfport v. Smith, 132 Miss. 63, 95 So. 785; Jefferson Bank v. Merchant's Refrigeration Co., 236 Mo. 407, 139 S.W. 545; National Bank v. Gibson, 105 Wn. 578, 179 P. 117, 6 A.L.R. 247; Taft v. Quinsigamond Nat. Bank., 172 Mass. 563, 52 N.E. 387; Wasson v. Lamb, 120 Ind. 514, 22 N.E. 729; First Nat. Bank of Cincinnati v. Burkhardt, 100 U.S. 686, 25 L.Ed. 766; Nat. Bank of N.J. v. Berrall, 70 N.J.L. 757, 58 A. 1026, 66 L.R.A. 599; Spokane Trust Co. v. Huff, 63 Wn. 225, 115 P. 80, 33 L.R.A. (N.S.) 1023; Burton v. U.S., 49 L.Ed. 482; Old Nat. Bank v. Gibson, 105 Wn. 758, 179 P. 117, 6 A.L.R. 247; Fourth Nat. Bank of Montgomery v. Bragg (1920), 102 S.E. 649, 11 A.L.R. 1034; Alexander v. Birmingham Trust Savings Bank, 89 So. 66, 16 A.L.R. 1079; Weed v. Boston Maine Railroad Co., 124 Me. 336, 128 A. 696, 42 A.L.R. 487; Bromfield v. Cochran, 86 Colo. 486, 283 P. 45, 68 A.L.R. 722.
The proof shows that the insurance company received nothing out of this account except what was rightfully due it. The mere fact that the insurance company received what was due it does not make it liable, especially when this money was used to replace funds previously misappropriated by Johnson.
Merchant's Nat. Bank v. Nichols Shepard Co., 223 Ill. 41, 79 N.E. 38, 7 L.R.A. (N.S.) 752, 756; Ark. Valley Bank v. Kelley, 176 Ark. 387, 3 S.W.2d 53, 58 A.L.R. 808.
If this account was the account of the insurance company then the bank violated its deposit contract with the insurance company, by allowing the proceeds of the individual checks of Johnson previously credited to this account, to be drawn out before they were collected in violation of the alleged conditional credit contract of the deposit slip.
Old Nat. Bank v. Gibson, 105 Wn. 758, 179 P. 117, 6 A.L.R. 247; Bank of Gulfport v. Smith, 132 Miss. 63, 95 So. 785.
If this account was the account of the insurance company then the bank violated the deposit contract with the insurance company by applying funds of the insurance company to the individual debt of Johnson to the bank.
Allen v. Puritan Co., 211 Mass. 409, 97 N.E. 916, L.R.A. 1915C, 518; Note to 13 A.L.R. 324, 334; Armour Cudahy Packing Co. v. First National Bank (1892), 69 Miss. 700, 11 So. 28.
If this account was the account of the insurance company then the insurance company is not liable to the bank because the bank waived the conditional credit contract of the deposit slip and accepted the individual checks of Johnson as cash.
Old Nat. Bank v. Gibson, 105 Wn. 758, 179 P. 117, 6 A.L.R. 247; Bank of Gulfport v. Smith, 132 Miss. 63, 95 So. 785.
Creekmore Creekmore, of Jackson, and J.W.T. Falkner, of Oxford, for appellee.
The mere fact that the collecting bank credited depositor with the check as cash did not alter that relation (the agency of the bank for collection). This is the almost universal usage to credit such collections as cash, unless the customer making such deposit is in weak credit. If the check is unpaid, it is charged off again, and the unpaid check returned to the depositor.
Winchester Milling Co. v. Bank of Winchester, 18 L.R.A. (N.S.) 451.
After the deposit of a check and the giving to the depositor of conditional credit therefor, the depositor, by presenting his own check for the amount of his balance, including such conditional credit, thus established beyond argument his desire and request that the theretofore existing condition in the credit be waived or modified. Upon the presentation by a depositor of a check against such conditional credit, the bank may do any one of a number of things: (1) It may refuse to pay the depositor's check until assured that the conditional credit shown in the account of the depositor has become absolute by the payment of the deposited check at the bank on which it is drawn. Such a course would be a refusal to waive or contract away the previously agreed upon condition involved in the depositor's credit. (2) The bank may cash the depositor's check solely upon his individual credit, looking to him solely to pay the overdraft if one shall result, which would constitute a new contract independent of and distinct from the previous conditional credit contract, and the bank could sue its depositor thereon. (3) The bank might, under the situation which we are now considering, waive the condition created for its own protection, make the conditional credit absolute, and pay the depositor's check upon the credit of the check theretofore deposited by him, but not yet collected. This would constitute an acceptance of the depositor's offer made by presenting his check, and would create a new contract wholly superseding the previous conditional credit contract. (4) Or the bank may, without inconsistency, combine the last two courses suggested, and pay the depositor's check on the combined credit of the depositor and of the deposited check; just as in making a loan to a customer upon a note secured by collateral, the bank would grant the credit upon the combined worth of the borrower and of the collateral pledged. This also would be an acceptance of the depositor's offer to supersede the contract for conditional credit.
Bank of Gulfport v. Smith, 132 Miss. 63, 95 So. 785.
Argued orally by Phil Stone and P.M. Estes, for appellant, and by H.H. Creekmore, for appellee.
The First National Bank of Oxford, Mississippi, brought suit against the appellant, insurance company, alleging that the insurance company was licensed to do business in the state of Mississippi, and that in the conduct of its business the defendant had as its superintendent, or district manager in the state of Mississippi, one T.E. Johnson, who had been such district manager since June, 1921; that since June, 1921, the defendant had continuously kept and maintained an account with the plaintiff; that all of the deposits to the credit of the said account were made by its district manager, Johnson; and all checks against said account were signed in the name of the defendant by T.E. Johnson, district manager. To the credit of this account there was deposited by the defendant between June 20, 1921, and March 10, 1928, when the account was closed, large sums of money, and from such account there were checked out from time to time large sums of money by the defendant through its district manager, which sums of money so checked out paid the salaries of agents of the defendant, its general expenses in the territory covered by its district agent, and all claims against the defendant growing out of its contracts of insurance written in the territory, and in addition weekly remittances were made to the home office of the defendant. That through all these years the defendant maintained a balance to its credit with the plaintiff, and on March 1, 1928, the credit of the defendant with the plaintiff was two thousand seventy-one dollars and sixty-two cents; that between the 1st and 7th of March, 1928, large additional sums represented by checks on other banks were deposited to the credit of the defendant with the plaintiff, which credit was conditional and subject to final payment of the checks, and during the same period of time large withdrawals were made, but there was left a balance to the credit of the defendant with the plaintiff until March 10, 1928, when checks which had been deposited by the defendant with the plaintiff for which it had been given credit, and on which checks of the defendant had been paid by the plaintiff, were returned unpaid from the banks on which they were drawn, the checks amounting to seven thousand six hundred fifty-four dollars. The nonpayment of these checks left a debit balance against the defendant and in favor of the plaintiff on its bank account in the sum of seven thousand five hundred sixty-five dollars and four cents; and judgment was demanded for this amount.
The defendant filed various pleas setting up its nonliability, and some of the pleas denied that the account was its account, but was a personal account maintained by T.E. Johnson, and that the defendant was not liable for the overdrafts drawn by T.E. Johnson. It filed other special pleas setting up, in substance, that many of the checks were drawn payable to the order of T.E. Johnson, personally, and that such checks should not have been paid out of the funds belonging to the defendant, if it was the defendant's bank account. It also alleged that the checks which were given by T.E. Johnson personally, and indorsed by him personally, which were returned unpaid by the banks upon which they were drawn and for which he received exchange and cash in various sums, should not be charged to the account of the defendant; that as the defendant had neither made nor indorsed said checks and as the same were not given by Johnson purporting to be the agent of the defendant, nor indorsed by Johnson as district manager, the bank must be held to have accepted the said checks as cash, relying either upon the credit of T.E. Johnson personally, or on the bank on which they were drawn.
It appears that T.E. Johnon, the district manager of the defendant, paid various obligations of the defendant out of the bank account by checks drawn and signed by him as district manager of the defendant, and that remittances were made to the home office by Johnson, weekly, of sums from two to four hundred dollars, by check so signed, through a long series of years, and that Johnson drew checks upon said account to pay the agents employed by the company in the territory over which he was district manager, and for other expenses in conducting the company's business. It further appears that some time before the account was closed Johnson had resorted to a practice of depositing to the account above stated his personal checks drawn on the bank at Holly Springs, Mississippi; that he would then go to the local express company's office, draw checks payable to himself and indorsed personally, and procure money orders from the express company which he would send to Holly Springs and deposit to his account, upon which he would again draw checks in favor of the Bank of Oxford, and he continued the process as above indicated from time to time. It appears that a few months prior to the closing of the account some of the checks given by Johnson had been returned unpaid by the bank at Holly Springs, upon which they were drawn; that the cashier of the plaintiff took the matter up with Johnson; and that Johnson explained that it was due to failure of remittances to arrive, and such checks were subsequently paid by the bank at Holly Springs. A short while before the account was closed, a traveling agent of the express company, auditing the offices of the company, became suspicious of Johnson's transactions with the express company and told the cashier of the bank that he had reason to believe that Johnson was kiting. The cashier asked the said agent if he thought he had better close the account, or something to that effect. The express auditor stated he was going to Holly Springs and would investigate and let him know. He returned in a day or two to Oxford, and stated that he had reached the conclusion he was mistaken, that Johnson had a substantial balance to his credit in the bank at Holly Springs. A national bank examiner visited the bank shortly before the account was closed and suggested to the cashier that the cashier was having to do too much work for the account involved, but the cashier explained that he was expecting to secure all of Johnson's business, as Johnson had promised to remove the account from Holly Springs to Oxford.
After the last checks were returned, which appeared to have been given to the bank for exchange and cash and not to be deposited, the account was closed, and demand made upon the defendant for the balance sued for. In answer to this defendant called for full and detailed information and suggested that the bank might be due it, because of improperly paying out the defendant's money. After learning in detail all the facts with reference to the matter, or the main facts in reference thereto, the defendant disclaimed the account.
At the conclusion of the evidence the court disallowed the plaintiff the checks given by Johnson personally on his account drawn on the bank at Holly Springs and not deposited to the account at Oxford and for which he had received cash or exchange, and denied the plaintiff any recovery except as to eight hundred three dollars and eighty-three cents, for which he gave a peremptory instruction against the defendant. In his ruling upon the motions at the end of the trial, among other things, the trial judge said: "The proof in this case shows that within the ten days immediately preceding the closing of this account on the 7th day of March, 1928, T.E. Johnson, General Manager of the Life Casualty Insurance Company checked out of this account to himself, twelve thousand eighty-five dollars. It shows that during those days that he deposited to the credit of this account his personal checks on the First State Bank of Holly Springs payable to himself and endorsed by himself the sum aggregating, ten thousand eight hundred thirty dollars. It is apparent to the court that he was doing in those ten days some rather dizzy financeering. I think it would be unjust to the defendant company to make them pay for these checks they got no benefit from, and I think the bank ought to have stopped that sort of thing, or at least, investigated it. In the meantime, he checked out eight hundred three dollars and eighty-three cents, which the court thinks under the proof, went to pay the actual obligations of this company. I am going to eliminate everything but that eight hundred three dollars."
We think the evidence in the record, which we have examined and considered, warrants the judge in so holding, and the judgment of the court below will be affirmed on direct and cross-appeal.
Affirmed.