Summary
In Love v. Meridian Grain Elevator Co., 162 Miss. 773, 139 So. 857, and Kansas Flour Mills Co. v. New State Bank of Woodward, 124 Okla. 185, 256 P. 43, it was held that similar instructions attached to drafts forwarded for collection clearly evidenced an intention to prevent the creation of a debtor and creditor relationship by a commingling of funds after the drafts were collected.
Summary of this case from Bassett v. Mechanics BankOpinion
No. 29694.
March 10, 1932.
1. BANKS AND BANKING. As respects claimed trust relationship, instruction printed on draft forbidding commingling of proceeds with funds of collecting bank held notice that bank was drawer's agent.
Instruction printed on draft in question stating that such draft was a cash item and was not to be treated as a deposit, and that funds obtained through its collection should not be accounted for to drawer, or commingled with other funds of collecting bank, notified bank that drawer did not intend that draft or proceeds thereof should be handled by bank except as drawer's agent, and intended that agency should continue from the time bank received draft for collection until money was paid to drawer.
2. BANKS AND BANKING.
Notice on draft that collecting bank was drawer's agent held not withdrawn by drawer's letter suggesting that bank might remit in exchange on certain cities.
3. BANKS AND BANKING.
As respects claimed trust relationship, collecting bank having chosen to deal with draft as drawer's agent, contract offered by drawer establishing principal-agent relationship became binding.
4. BANKS AND BANKING.
After collection, relation between owner of paper and collecting bank depends on parties' intention ascertained by court.
5. BANKS AND BANKING.
Respecting trust relationship existing after collection, banking custom to credit those for whom collections have been made, and to remit in bank's usual exchange, is part of parties' intention, unless contrary appears.
6. BANKS AND BANKING. That collecting bank remitted by exchange rather than actual money held insufficient to change parties' intention contemplating principal-agent relationship.
It appeared that clearly expressed intention of parties was that relation of principal and agent between drawer of draft in question and collecting bank was to continue throughout transaction and until agent had discharged its duty to principal by placing property in hands of principal, and that bank never became mere debtor of drawer.
APPEAL from chancery court of Newton county.
Flowers, Brown Hester, of Jackson, for appellants.
The rule undoubtedly is that unless there is some agreement or course of dealing whereby the funds are to be held separate and the identical proceeds remitted, the owner of the drafts stands upon no higher ground than the other creditors of the bank in a case where the bank collects the draft prior to making the general assignment. Any agreement or understanding or course of dealing whereby the bank is to use the identical moneys collected, and substituted its own obligation in its stead, destroys all idea of a trust.
Aiken v. Jones, 25 L.R.A. 523; Sayles v. Cox, 95 S.W. 626, 49 A.S.R. 940, 32 L.R.A. 715.
The courts quite uniformly adhere to the theory that, before the collection is made, the relation existing between the owner of the paper and the collecting bank is that of principal and agent. When the collection has been made, the relation existing between the owner of the paper and the collecting bank depends upon the intention of the parties. According to the view now generally adopted, though not without exception, the relation of debtor and creditor arises after the collection has actually been made. This conclusion is based upon the custom of banks to credit those for whom collections have been made, and remit in the bank's usual exchange.
The majority rule, as above stated, that after the collection is made the relation of debtor and creditor arises, hence no trust exists, has been adhered to in a number of cases in which the collection was made by receiving a check on the insolvent bank, and charging the same to the account of the drawer, the court holding that the general rule is not altered by reason of payment in this manner.
Love v. Federal Land Bank, 127 So. 720.
A correspondent of a bank, whose claim it has collected, does not have an equitable lien on all the assets of the bank, securing precedence over all other creditors of the bank. It is enough to allow the correspondent who sends his claim to a bank for "collection" to pursue and reclaim his own, without depriving others of their rights. There is no such magic in the word "trust" as to convert all of the assets of a bank into a fund to secure one who deals with it for the convenience of collecting claims, in preference to others who trust it and deal with it. Wherever there is a trust, it may be enforced as such, but calling one sort of claim a trust merely to place it on a better footing is not allowable.
Billingsley v. Pollock, 67 Miss. 759, 13 So. 828, 30 Am. St. Rep. 585.
The general rule is that after collection has been made the bank becomes a simple contract debtor for the amount, less the commission, if any, has been charged.
Security Savings, etc., Company v. King, 69 Or. 228, 138 P. 465; Hilburn v. Mercantile National Bank, 39 Colo. 189, 89 P. 45.
When a draft is forwarded to a bank for collection and remittance, and collection is made and the proceeds placed in the vaults of the bank, a draft for the amount less charges for collection, being forwarded in payment, such proceeds do not become a trust fund in the hands of the bank.
Morse on Banks Banking (15 Ed.), sec. 248; 3 R.C.L., p. 633, sec. 261; Young v. Tutonia Bank, 133 La. 879, 64 So. 806; Bowman v. National Bank, 9 Wn. 614; Gonyer v. Williams, 168 Cal. 452.
When, the paper has once been collected by the correspondent bank, and it has received the proceeds therefor, the relation between the remitting bank and itself is changed from that of principal and agent to that of debtor and creditor, and title to such proceeds will, in the absence of an agreement to the contrary, vest in the correspondent bank. The banks are presumed to contract in view of the well-known and established custom of banks, when acting as collecting agents for other banks, or, indeed, for any customer, to put all collections made by them into the general fund of the bank, unless directed to make of them a special deposit, and use them from hour to hour, and from day to day in the transaction of their current business.
3 R.C.L., p. 636, sec. 265.
If the person for whom the collection is made permits, without objection, the money collected to be mingled generally with the funds of the collecting bank, it may, it would seem, lose its character as a trust fund, and the claim of the transmitting bank becomes merely that of an ordinary creditor.
3 R.C.L., p. 633, sec. 261.
J.H. Currie and J.C. Floyd, both of Meridian, for appellee.
The act of forwarding the item for collection by appellee company to the bank when accepted created the relationship of principal and agent, and as long as this status existed the bank, as agent, was trustee for appellee, its principal.
3 R.C.L., p. 633, sec. 261; Love v. Federal Land Bank, 127 So. 720.
When the collection has been made, the relationship existing between the owner of the paper and the collecting bank depends upon the intention of the parties.
Love v. Federal Land Bank, 127 So. 724; 3 R.C.L., p. 632, sec. 261.
When the terms of a contract are clear, unambiguous and valid, evidence of custom cannot be permitted to change them.
Telegraph v. Wills, 93 Miss. 540, 47 So. 380.
The relationship of principal and agent was clearly maintained up to May 16th, the day the bank closed its doors for the last time and passed into the hands of the appellants for liquidation.
Ryan v. Paine, 66 Miss. 678, 6 So. 320; Kinney v. Paine, 68 Miss. 258, 8 So. 747.
In using deposits made for the purpose of having them applied to a particular purpose, the bank acts as the agent of the depositor, and, if it should fail to apply it at all, or should misapply it, it can be recovered as a trust deposit; and the agency created by the deposit is revocable by the depositor at any time before the purpose of the deposit has been accomplished.
7 C.J., p. 631, sec. 307; Sawyer v. Conner, 114 Miss. 363.
When the bank did accept the contract of agency and proceeded to act thereunder, it was bound by the instructions.
Armour v. Bank, 69 Miss. 700; Shawmut Bank v. Barnwell, 140 Miss. 816.
The relationship of principal and agent created by the contract could not be changed to that of debtor and creditor without the consent expressed or implied, by both parties.
McLeod v. Evans, 57 Am. Rep. 287; Commercial National Bank v. Armstrong, 39 Fed. 684.
Where a transaction between two banks is strictly a cash transaction, and so understood and acted on by all the parties, the fact that one of the parties uses one of the banking conveniences of the present day to make its remittance which it otherwise would have made in currency or cash should not operate to the prejudice of the bank to which such remittance is attempted to be made.
Myers v. Federal Reserve of Atlanta, 134 So. 600.
No reciprocal accounts existed between the bank and the appellee. Under those circumstances, the then existing relation of principal and agent is not changed to that of debtor and creditor by the mere act of remitting to appellant the funds so held by exchange. To hold otherwise would compel the owner to either require a remittance in specie, or to become a creditor of the bank in the true sense of that term, whether such relation is desired or not by the owner of the fund. While the purchaser of foreign exchange in the usual course of business is not entitled to preference over the general creditors of the drawer bank in case of its insolvency before the draft is paid by the drawee, the rule is otherwise when the money represented by the exchange or drafts is held by the drawer bank as agent, bailee, or trustee for the true owner.
Bryan v. Bank of Coconut Grove, 132 So. 487.
Specific instructions take the particular transaction without the ordinary course between corresponding banks, in which the relation of creditors and debtor, or general depositor would result; and the collecting bank could not without the consent of the initial bank and in violation of the latter's instructions, alter or change the relation so created by any subsequent conduct or action of its own in dealing with the proceeds of the draft when collected.
Hutchinson v. National Bank of Commerce, 41 So. 143.
The best statement of the qualification of the general rule is that where a special agency is created, and the collecting bank has no authority to hold and credit proceeds of paper, but is bound by the agreement to remit them immediately to its correspondent (or owner or holder), the relation of trustee and beneficiary is created, and the money collected, or its equivalent, can be recovered from the assignee of the insolvent bank, if the fund be traceable.
First National Bank of Burton v. Dennis, 146 P. 948.
It is well established that a bank, receiving a draft for collection merely, is the agent of the remitter, drawer, or forwarding bank, and takes no title to the paper, or the proceeds, when collected, but holds same in trust for remitter.
State Bank v. First National Bank of Atchinson, 187 S.W. 673.
It may be that when the entire mass is once paid away, the right to claim a trust in any money or property is forever lost. But if, throughout all the trustee's dealings with the funds so mingled together, he keeps on hand a sufficient sum to cover the amount of the trust money it is capable of demonstration that the trust should attach to the balance that is found to remain in his hands.
Continental National Bank v. Weems, 5 Am. St. Rep. 85.
It is not sound to hold that the relation of principal and agent would change by the mere act of remitting by cashier's checks instead of sending the cash.
Skinner v. Porter, 263 P. 993.
Money deposited by a party in payment of a specific indebtedness creates a trust fund, and the bank as trustees is required to retain it in trust for the discharge of such indebtedness. The mingling of such funds with money of general depositors does not destroy its trust character.
Pontius v. First Savings Bank, 16 Ohio App. 240.
Where the relation of trustee and cestui que trust is established the mingling of the trust fund with the general fund in the hands of the trustee does not destroy the trust, but serves to extend the trust or lien to the whole mass of money.
Helsinger v. Trichett, 86 Ohio St. 286, 99 N.E. 305, Ann. Cas. 1913d 421.
Where a bank to which a check on itself is sent for collection, charges it to its depositor and remits its own draft on another bank — and becomes insolvent, the payee of the draft is entitled to a preference out of the assets of the collecting bank as for a trust fund.
Bank of Poplar Bluff v. Millspaugh, 281 S.W. 733, 47 A.L.R. 745.
The instructions were plainly imprinted on the face of the draft, and notified the collecting bank that it was acting as agent throughout, and the proceeds of the collection were not to be treated as a deposit and not to be intermingled with the general funds of the bank, thus expressly negativing the notion that the relation of depositor should ever arise. The item, claim, or collection in controversy was, when received by the bank, and continued to be, a trust fund.
Kansas Flourmills v. Bank, 256 P. 43.
Argued orally by Clyde Hester, for appellant, and by J.H. Currie, for appellee.
This case arose in the chancery court of Newton county on a petition of the Meridian Grain Elevator Company, appellee, to have a certain claim in its behalf adjudicated as a preference claim, establishing as a trust certain funds in the hands of J.S. Love, superintendent of banks, and M.L. Thompson, liquidating agent, appellants, these funds having come into the hands of the latter because of the failure of the Citizens' Bank of Newton, in which the funds in question were held. The superintendent of banks and the liquidating agent admitted the correctness of the appellee's claim, but denied that same was a trust fund, and as such entitled to preferential payment. Upon the trial of the issue the court below established the claim as a preference claim arising out of a trust in favor of the appellee; and from that decree the representatives of the bank appeal here.
On May 5, 1930, the Meridian Grain Elevator Company of Meridian, Miss., sold and shipped to Buckley Brothers of Newton, Mississippi, a carload of merchandise, and on the same day drew a draft upon Buckley Brothers, attaching thereto the bill of lading for the car of merchandise. The draft is as follows:
"No. 7498 This draft is a cash item and is $787.25 not to be treated as a deposit. The funds obtained through its collection are not to be accounted for to drawer, and are not to be commingled with the other funds of collecting bank.
"Meridian, Miss., May 5, 1930.
"At Sight pay to the order of Citizen Bank ____ dollars.
Invoice Car Car Date ____ 1397 ____ Initials ____ Number ____
Bill of Lading Attached ____ Value received and Charge to account of Meridian Grain To ____ Buckley Brothers ____ Elevator Co. ____ Newton, Miss. ____ By: J.M. Segar."
Attached to and accompanying the draft was a letter of instruction to the Citizens' Bank of Newton, Mississippi, the collecting agent, in the following words, to-wit:
"Citizen Bank, Newton, Miss.,
"Gentlemen: We enclose herewith our Draft or Trade Acceptance as listed below, for collection and returns. No Protest.
"Kindly deliver to payee any bill of lading attached, only upon payment of draft, and remit to us immediately in New York, New Orleans, or Chicago Exchange.
"Drafts on any other city cost us extra exchange, and we cannot accept any other than New York, New Orleans, or Chicago Exchange, if you deduct exchange charges to begin with. We will accept, without deductions on your part, drafts on other cities, in case you are unable to furnish New York, New Orleans, or Chicago Exchange to us:
--------------------------------------------------------- 7498 Buckley Bros. --------------------------------------------------------- "Very truly yours, "MERIDIAN GRAIN ELEVATOR Co. "B. McRAVEN, Sect-Treas."
The Citizens' Bank of Newton received the draft with bill of lading attached, and letter of instruction, on or about May 8, 1930, on which day the bank presented same to Buckley Brothers, and received in payment thereof the check of Buckley Brothers on it for the amount of the draft, and thereupon the bank delivered the draft, with bill of lading attached, to Buckley Brothers. At the time the bank received the check in payment of the draft, Buckley Brothers had ample funds on deposit there to pay the said check. The bank charged the amount of the check to the checking account of Buckley Brothers, and mailed its draft for seven hundred eighty-six dollars and forty-five cents on the First National Bank of Meridian, to the Meridian Grain Elevator Company. There were ample funds to the credit of the Citizens' Bank of Newton with the First National Bank of Meridian to pay this check. At all times between the date of the receipt of the draft by the Citizens' Bank of Newton and the date it was charged to Buckley Brothers, May 16, 1930, the latter had ample funds to its credit with which to pay the check. On the day its exchange was mailed, May 16, 1930, the Citizens' Bank of Newton suspended business and closed its doors, not opening for business on May 17th, and has not since that time reopened. On the following morning the Meridian Grain Elevator Company presented the draft drawn by the Citizens' Bank of Newton in its favor on the First National Bank of Meridian, but the latter bank declined to pay the same because it had been advised that the drawing bank, Citizens' Bank of Newton, had closed its doors, although there were ample funds to the credit of the Citizens' Bank with which to pay the draft or exchange.
The president of the Meridian Grain Elevator Company testified that he had drawn similar drafts with similar letters of instruction accompanying such drafts a number of times within the space of two years previous to the drawing of this draft, and that he had received the exchange of the Citizens' Bank drawn on different banks, that his money had been paid, and that he had made no complaint because the Citizens' Bank had not delivered to him the actual money instead of remitting by the transmission of its exchange to him. On May 16, 1930, when the Citizens' Bank closed its doors, there was in its vault over five thousand dollars in cash, which was placed under the control of the banking department and its liquidating agent. The Citizens' Bank had not, in fact, sought to create the relation of depositor with reference to its handling of this draft for the Meridian Grain Elevator Company.
It is quite clear to us that the instruction printed on the draft notified the collecting bank that the Meridian Grain Elevator Company did not intend for this draft, or proceeds thereof, to be handled by the Citizens' Bank except as its agent, and such agency to continue from the time the bank received the draft for collection until the money was paid to appellee. It was notice that the appellee did not want to become a depositor; that it did not want the relation of debtor and creditor to exist between it and the collection agent. Appellee forbade the commingling of its funds, when collected, with the funds of the bank. The letter accompanying the draft did not in the slightest degree, in our opinion, withdraw this positive notice. It merely suggested that the draft, if paid by the drawee, the collection agent, might be sent drawn in a certain manner, and on banks in certain cities. When the bank received this draft and the letter accompanying it, there could have been no misunderstanding with regard to it. The notice printed on the draft was unequivocal; and the Citizens' Bank was under no obligation, so far as this record discloses, to handle this draft, but it saw fit to go forward and deal with same as the agent of the forwarder, and, having done so, the contract offered by the forwarding party became binding — in other words, the whole contract was one of principal and agent, and it was a contract, in effect, that this relation should not be changed by the Citizens' Bank. It was clearly the intention of the Meridian Grain Elevator Company not to become debtor to the Citizens' Bank; and it is also clear that this intention could not have been misunderstood by the bank, and that it accepted and transacted the business with that understanding.
We think this case is settled under the principles announced by this court in the cases of Ryan Son v. Paine, 66 Miss. 678, 6 So. 320, and Kinney Co. v. Paine, 68 Miss. 258, 8 So. 747. And in a later announcement of this court in the case of Love v. Federal Land Bank of New Orleans, 157 Miss. 52, 127 So. 720, 723, there was no question of trust raised except, perhaps, as to the insolvency of the collecting bank at the time of the collection. Judge ETHRIDGE, speaking for the court in this case, said that the relation of principal and agent exists where a paper is sent simply for collection until the money is collected, and thereafter that relation is changed to that of debtor and creditor. When it appears that the intention of the parties is different, then the intention of the parties ascertained by the court controls under this general principle of law, or, as said in this case, "When the collection has been made, the relation existing between the owner of the paper and the collecting bank depends upon the intention of the parties." It was further demonstrated that this case was decided upon the well-known fact that the custom of banks was to credit those for whom collections have been made, and to remit in the bank's usual exchange. Of course, this custom of banks is a part of the intention of the parties, unless that intention otherwise appears.
In the case at bar, it clearly appears that the parties had the contrary intent, and acted upon it. The Citizens' Bank of Newton made no effort to credit the Meridian Grain Elevator Company with the funds, and it would be idle to say that the mere fact that banks sent their exchange instead of sending the actual money by messenger or otherwise would be sufficient to change the clearly expressed intention of the parties in the transaction here under consideration. We do not deem it necessary to follow counsel for the parties herein in their citation of numerous authorities on this question, which has vexed the various courts of the country, but content ourselves with the announcement that the decision herein is in line and accord with the policy of this court on this question. There are conflicts in other courts of the country which cannot be harmonized, and an effort to do so will only tend to confuse the bench and bar. We simply announce that in this case it clearly appears that the intention of the parties was that the relation of principal and agent was to continue throughout the transaction until the agent had discharged its duty to the principal by placing in its hands its property. That relation in the instant case never changed; the Citizens' Bank never became the mere debtor of the Meridian Grain Elevator Company. The court below so held.
Affirmed.