Opinion
No 25800
Decided May 13, 1936.
Banks and banking — Liquidation — Debtor and creditor relationship established — Deposit of check in commercial department constitutes deposit for credit, when.
A deposit of checks drawn on a local bank, endorsed in blank and entered on the commercial pass book and bank ledger to the credit of the depositor, the bank reserving the right to charge back any item not collected, constitutes a deposit for credit and establishes the relationship of debtor and creditor between the bank and the depositor.
ERROR to the Court of Appeals of Cuyahoga county.
This is an action by a depositor of a bank now in liquidation for the establishment as a preference of a deposit of checks made within forty-eight hours before the bank closed, and collected by the liquidator.
Defendant in error, Martin N. Goulder, will hereinafter be referred to as Goulder and plaintiff in error as the Superintendent of Banks.
Goulder, a depositor in the commercial department of the Standard Trust Bank of Cleveland, deposited checks aggregating $1295.60, on Saturday, December 19, 1931. On Monday, December 21, 1931, the bank failed to open for business, the Superintendent of Banks having taken possession thereof for the purpose of liquidation.
It appears that Goulder, in calling at the bank for the purpose of making his deposit, went over to one of the counters in the main corridor of the bank and picked up one of the bank's regular commercial deposit slips and filled in the date, his name, and listed the checks, seven in number, one of which was an official check of The Union Trust Company of Cleveland for $1200, all of which he endorsed in blank, aggregating $1295.60, and deposited them with the teller receiving deposits of those whose names begin with "G." Upon receiving the deposit slip and checks the teller entered the total amount of the deposit to the credit of Goulder in his commercial pass book.
On the date of the deposit a credit in the total amount of the deposit was regularly entered on the ledger sheet of the bank containing Goulder's account.
These checks, so deposited, were not put through clearance until the morning of December 21, 1931, after the Superintendent of Banks took charge; and the proceeds of these checks were received by the liquidating agent of the bank on the same day.
On April 16, 1932, Goulder presented his claim for preference, to the extent of $1295.60, to the Superintendent of Banks, and the same was rejected on May 20, 1932. Action for preference was then instituted by Goulder in the Court of Common Pleas of Cuyahoga county. He based his claim on the theory that the checks were deposited with and accepted by the bank for collection only, and that since the checks were collected after the bank had closed the proceeds were received by the Superintendent of Banks as agent for Goulder and were retained by the former as a special fund belonging to Goulder.
The trial court rendered judgment allowing the claim for preference, which judgment was affirmed by the Court of Appeals. To reverse said judgment error is prosecuted to this court.
Mr. John W. Bricker, attorney general, and Mr. M.P. Mooney, for plaintiff in error.
Messrs. Harrison Marshman, for defendant in error.
In the amended petition filed by Goulder there was an allegation to the effect that at the time of the receipt of the deposit the bank was insolvent, and that the receipt of deposits under such circumstances constituted fraud. However, at the trial of the case no evidence whatever was introduced in support of that allegation. Fraud cannot be presumed but must be affirmatively proved. Since there is no testimony whatever bearing upon the element of fraud we shall entirely eliminate that question from consideration.
Whether Goulder is entitled to have his claim given preference over the claims of other depositors of the bank depends entirely upon the relationship which he and the bank sustained to one another. The parties agree that if the deposit of the checks was made for collection only, the relationship of principal and agent arose, entitling Goulder to a preference. If, on the other hand, the deposit was made and accepted for credit, the relationship of debtor and creditor arose, by reason of which Goulder would not be entitled to a preference.
The question, therefore, presented for our consideration is whether the deposit of these checks was made for credit or for collection only. If the deposit was one for credit, then title to the checks passed from the depositor to the bank immediately upon the acceptance of the deposit. If, on the other hand, the deposit was for collection only, then title to the checks did not pass but remained in the depositor.
The general rule is that a deposit will be deemed one for credit rather than for collection, in the absence of a special agreement to the contrary.
"A deposit in a bank is presumed to be general in the absence of an agreement to the contrary." 3 Ruling Case Law, 517, Section 146. See also Alston v. State, 92 Ala. 124, 9 So. 732, 13 L.R.A., 659; Officer Admr., v. Officer, 120 Ia., 389, 94 N.W. 947, 98 Am. St. Rep., 365; Hawes v. Blackwell, 107 N.C. 196, 12 S.E. 245, 22 Am. St. Rep., 870; Bank of Marysville v. Windisch-Muhlhauser Brewing Co., 50 Ohio St. 151, 33 N.E. 1054, 40 Am. St. Rep., 660, and note; Leaphart v. Commercial Bank, 45 S.C. 563, 23 S.E. 939, 55 Am. St. Rep., 800, 33 L.R.A., 700; Washington Shoe Mfg. Co. v. Duke, State Supervisor of Banking, 126 Wn. 510, 218 P. 232, 37 A.L.R., 611.
"Unless there is some agreement to the contrary, deposits received by the bank become its property; they belong to it, and can be loaned or otherwise disposed of by it, as any other money belonging to the bank." 3 Ruling Case Law, 521, Section 149. See also New York County Natl. Bank v. Massey, 192 U.S. 138, 24 S.Ct., 199, 48 L.Ed., 380; State, ex rel. First Natl. Bank, v. Bartley, State Treas., 39 Neb. 353, 58 N.W. 172, 23 L.R.A., 67; Bank of Marysville v. Windisch-Muhlhauser Brewing Co., supra.
Unless otherwise especially agreed, the deposit of a check in a bank does not constitute a deposit for collection but a sale of the paper to the bank and passes title to the bank subject to the right of rescission if the paper subsequently proves to be without value. Raynor v. Scandinavian-American Bank, 122 Wn. 150, 210 P. 499, 25 A. L. R., 716.
The record is silent as to any special agreement to the contrary, and the whole dispute centers around the wording of the deposit slip used in this case, which reads as follows:
"THE STANDARD TRUST BANK
"Cleveland, O., 12-19-1931
"FOR CREDIT OF "Martin N. Goulder
"In receiving items for deposit or collection, this bank acts only as depositors' collecting agent and assumes no responsibility beyond the exercise of due care. All items are credited subject to final payment in cash or solvent credits. This Bank will not be liable for default or negligence of its duly selected correspondents nor for losses in transit, and each correspondent so selected shall not be liable except for its own negligence. This Bank or its correspondents may send items, directly or indirectly, to any Bank including the payor, and accept its draft or credit as conditional payment in lieu of cash; it may charge back any item at any time before final payment, whether returned or not, also any item drawn on this Bank not good at close of business on day deposited.
"Please list each check separately
"Dollars Cents
"Bills "Gold "Silver "Checks Enter Separately 1200.00 " 12.00 " 52.50 " 21.50 " 8.00 " .80 " .80 ------- "Total 1295.60
"See that all checks and drafts are endorsed"
Counsel for Goulder contend that the wording of the deposit slip means that the bank received the items for deposit only as the collecting agent of the depositor; that the deposit slip constitutes a binding agreement between Goulder and the bank; that since the deposit slip provides that the bank is only the depositor's collecting agent the deposit of the checks did not pass title to the bank.
Let us therefore now direct our attention to the determination of the meaning of the wording on that slip. However, in doing so, we shall also direct our attention to the printed matter appearing in the commercial pass book in which the credit was entered, the same likewise being in the record, which reads as follows:
"Always bring your book with your deposits.
"See that your entries agree with your ticket.
"All items payable outside of this city are taken with the understanding that this bank acts as your collecting agent and beyond using diligence does not assume responsibility for same until returns are actually received by them. (Italics ours.)
"THE STANDARD TRUST BANK "Cleveland, Ohio"
It may be noted that the wording in the pass book designates the bank as collecting agent for "all items payable outside of this city," from which we are justified in concluding that items payable within the city are not taken "with the understanding that this bank acts as your collecting agent," but that such items are received for credit. (Italics ours.) If such be the case, then title passed immediately upon the acceptance of the deposit and entry of credit.
Now let us direct our attention to the deposit slip. At the head of the deposit slip, beneath the date line and over and above the name of the depositor, we find the words "FOR CREDIT OF." Can these words be construed to mean "for collection"? In the body of the printed matter we find the Words: "In receiving items for deposit or collection, this Bank acts only as depositor's collecting agent * * *. All items are credited subject to final payment * * * it may charge back any item at any time before final payment." (Italics ours.)
In order to properly interpret the meaning of the terms "credit," "collection" and "depositor's collecting agent," we must read the deposit slip and the printed matter appearing in the pass book together, since they are apparently intended to supplement rather than to contradict one another.
While the pass book is specific in its designation of the bank as collecting agent for checks payable outside the city, the deposit slip, in speaking of receiving items for collection and in using the phrasing "this Bank acts only as depositors' collecting agent," does not define the territorial limit within which it is to act as agent, but is wholly silent in that respect. Where two instruments are to be read together, one of which is definite and the other vague, that instrument which is definite will control.
"When two written contracts are entered into between the same parties concerning the same subject-matter, whether made simultaneously or on different days, they may, under some circumstances, be regarded as one contract, and interpreted together." 6 Ruling Case Law, 851, Section 240.
It is quite apparent, therefore, from reading the two together, that the bank, in receiving the deposit of the checks in this case, the biggest of which, to wit, $1200, was on a local bank, did not undertake to act as depositor's collecting agent, but received the deposit for credit.
The deposit slip, in referring to the receipt of items for deposit or collection, further stipulates: "This bank will not be liable for default or negligence of its duly selected correspondents * * * and each correspondent so selected shall not be liable except for its own negligence. This Bank or its correspondents may send items * * *." (Italics ours.)
The term "correspondents" found in the deposit slip is directly responsive to the phrasing appearing in the printed matter in the pass book, "All items payable outside of this city" meaning that checks deposited with it are received for collection only when such checks are drawn upon banks "outside of this city" and requiring "correspondents" for the purpose of effecting collection in another city. (Italics ours.) The term "correspondent" is defined by Webster's New International Dictionary as "One who has regular commercial relations with another, especially with a firm at a distance; as, the London correspondent of a New York bank."
The apparent purpose of the wording both in the deposit slip and the pass book is to protect the bank against two contingencies, first, to render itself immune from liability for the "default or negligence of its duly selected correspondents" and, second, to expressly reserve the right to charge back dishonored checks against the account of the depositor. In other words, the purpose and intent of the stipulations contained in the deposit slip and pass book is not to establish the principal and agent relationship between the depositor and the bank, but rather to hold itself immune from responsibility for the neglect and default of its selected correspondents, and to have the right to charge back against the account of depositors checks which have been dishonored.
The stipulations in the deposit slip and pass book merely furnish a special agreement, by the terms of which the bank was absolved from such liability, and have no application to deposits of paper drawn on local banks.
This provision for immunity and right to charge back has no potency to give the deposit of checks the status of a deposit for collection. In order to constitute a deposit of checks one for collection only, a special agreement to that effect is required under the law, and the record is silent as to such an agreement.
It will also be observed that the checks deposited bore a general endorsement, evidencing no intention on the part of Goulder to deposit them for any other purpose than for credit.
Where a check is endorsed by the payee without restriction, and credited to his account, the bank does not hold it as an agent for collection but as owner. Heinrich, Exrx., v. First Natl. Bank, 219 N.Y. 1, 113 N.E. 531, L.R.A., 1917A, 655.
"While there is not entire uniformity of opinion, the weight of authority supports the view that upon the deposit of paper unrestrictedly indorsed, and credit of the amount to the depositor's account, the bank becomes the owner of the paper, notwithstanding a custom or agreement to charge the paper back to the depositor in the event of dishonor." City of Douglas v. Federal Reserve Bank, 271 U.S. 489, at page 493, 46 S.Ct., 554, 70 L.Ed., 1051.
"Where, therefore, the holder of a check, or other genuine instrument representing a fixed sum, delivers it to a bank and receives an unqualified credit as for a definite sum of money, the transaction is equivalent to an actual deposit of so much cash as of the date of the credit." Wasson, Treas., v. Lamb, Assignee, 120 Ind. 514, at page 517, 22 N.E. 729, 16 Am. St. Rep., 342, 6 L.R.A., 191.
"The general doctrine that upon a deposit being made by a customer, in a bank, in the ordinary course of business, of money, or of drafts or checks received and credited as money, the title to the money, or to the drafts or checks, is immediately vested in and becomes the property of the bank, is not open to question. * * * The transaction in legal effect is a transfer of the money, or drafts or checks, as the case may be, by the customer to the bank, upon an implied contract on the part of the latter to repay the amount of the deposit upon the checks of the depositor. The bank acquires title to the money, drafts, or checks, on an implied agreement to pay an equivalent consideration when called upon by the depositor in the usual course of business." Cragie v. Hadley, Receiver, 99 N.Y., 131, 1 N.E. 537.
No inference favorable to the principal and agent theory can be drawn from the wording of the deposit slip, the printed matter in the pass book, the character of endorsement on the checks and the entries of credit in the pass book and in the bank ledger. Consequently we conclude that the deposit was one for credit, and not for collection, that title passed immediately upon the making and acceptance of the deposit, and that the Superintendent of Banks, in collecting these checks, did so, not as agent for Goulder, but as owner. Goulder is therefore not entitled to a preference.
Judgment reversed.
WEYGANDT, C.J., STEPHENSON, JONES and MATTHIAS, JJ., concur.
ZIMMERMAN, J., dissents.
The writer concurs for reasons which, in his opinion, compel but one conclusion. Goulder deposited checks on other banks in his commercial account in the bank involved and received credit therefor. In this manner he became a creditor of the depositee bank and that bank stood ready to honor depositor's checks which might be drawn against the credit to his account (none of such checks having been charged back by reason of non-payment or otherwise by correspondent banks).
On the other hand the bank received the checks on other banks as mere agent of the depositor in forwarding them for collection but with the clear understanding between the depositor and depositee that when the proceeds of the collections came back to the depositee bank they should belong to the latter. In the instant case the checks deposited did not clear until after the Superintendent of Banks took possession for liquidation and such proceeds belong to the Superintendent of Banks. The proceeds go into the fund for general depositors and other creditors. As the Superintendent of Banks succeeds to the rights of the depositee bank on its contract with Goulder, the proceeds could not be said to be held in trust for Goulder and he is not entitled to a preference. He is merely a general creditor.
Everyone agrees that if the relationship between defendant in error and The Standard Trust Bank with reference to the checks deposited by the former on December 19, 1931, was that of principal and agent, defendant in error is entitled to the priority claimed, but if the relationship was that of creditor and debtor, he is not. The lower courts determined from the evidence that the status of principal and agent was established. I think they were right. Any other conclusion requires the indulgence of assumptions which the evidence will not support.
It appears from the record that defendant in error was a customer of The Standard Trust Bank of Cleveland, hereafter referred to as "the bank." On Saturday, December 19, 1931, he placed in that institution to be credited to his account seven checks aggregating the total amount of $1295.60, the largest one being for $1200 drawn on The Union Trust Company of Cleveland. The "Deposit Slip" on which they were listed, furnished by the bank, contained a significant printed statement over the space provided for check listings, a part of which is as follows:
" In receiving items for deposit or collection, this Bank acts only as depositors' collecting agent and assumes no responsibility beyond the exercise of due care. All items are credited subject to final payment in cash or solvent credits * * *; it [the bank] may charge back any item at any time before final payment * * *." (Italics mine.)
This notice on the deposit slip represents the specific conditions prescribed by the bank in relation to the deposit of these particular checks. It makes no distinction between "items" payable outside or inside the city of Cleveland and is not in conflict with the provisions in the "Deposit Book," referred to in the majority opinion.
The bank was officially closed by reason of insolvency on Monday morning, December 21, 1931, when it was taken over for liquidation by the Superintendent of Banks of the state of Ohio.
By stipulation of counsel it was agreed "that this check for $1200 * * * was paid by the Union Trust Company after the Standard Bank closed, and that the proceeds of that check were actually collected by and paid to the Liquidating Agent."
While defendant in error's "Deposit Book" together with certain record sheets from the bank containing a statement of his deposits, withdrawals and balances, covering the period from October 14, 1931, to December 19, 1931, inclusive, were introduced by plaintiff in error as exhibits in the case, an examination of them fails to show that defendant in error was ever permitted to or ever did draw against his account in excess of the cash balance on hand. In other words, no withdrawals against uncollected checks, drafts, etc., appear. There is nothing to disclose a customary course of dealing between defendant in error and the bank contrary to the quoted stipulation on the deposit slip. Because of a lack of evidence that it was disregarded, the notice on the deposit slip assumes controlling significance. It is the predominant indication of the intention of the parties, intention being the decisive criterion in any case.
Particularly applicable to the present controversy is the statement in the opinion of People of the State of Illinois, ex rel. Russel, v. Michigan Ave. Trust Co., 242 Ill. App. 579, at pages 594 and 595, as follows:
"Upon the general question whether the title to checks deposited by a customer of a bank to his account passes to the bank by an unrestricted indorsement of the paper deposited, the authorities are not harmonious. * * * The majority view is that where a deposit of that kind is made and immediate credit is given to the depositor, subject to the right on the part of the bank to charge back any check or draft that is not paid, the title to the paper passes to the bank, and the relation thereby created between the bank and the depositor is that of debtor and creditor, in the absence of any agreement to the contrary * * *. But it is contended by petitioners, and we think correctly, that where there is an agreement between the depositor and the bank, such as is indicated by the printed provision in petitioners' pass-books, the agreement is binding on the parties to it, and as between themselves, the bank becomes merely the depositor's agent, the title to the paper remaining in the depositor * * *. There is no dissent from the general proposition that the question is fundamentally one of intention * * * to be determined by the facts and circumstances surrounding the deposit, and among such facts and circumstances, the authorities generally regard a printed notice in the depositor's pass-book, or on the deposit slips, as very material, if not conclusive evidence of such intention."
On the question of intention, see In re State Bank, Insolvent, 56 Minn. 119, 57 N.W. 336, 45 Am. St. Rep., 454; Fayette National Bank v. Summers, 105 Va. 689, 54 S.E. 862, 7 L.R.A. (N.S.), 694 and note; 2 Morse on Banks Banking (6 Ed.), 1231, Section 583; 3 Ruling Case Law, 524 and 525, Section 152.
Among the many cases in point, holding that the deposit of checks or other similar instruments by a depositor in a bank, under provisions on a deposit slip or in a pass book identical with or similar to the provision contained on the deposit slip in the instant case, establishes the relationship of principal and agent, which does not become that of creditor and debtor until such bank has made collection in the usual course of business, are:
American Barrel Co. v. Commissioner of Banks, ___ Mass., ___, 195 N.E. 335; Illinois Central Rd. Co. v. Rawlings (C.C.A. 5), 66 F.2d 146 (Certiorari denied, 291 U.S. 668, 54 S.Ct., 452, 78 L.Ed., 1058), Macon Grocery Co. v. Citizens Bank, 42 Ga. App. 74, 155 S.E. 57; South Park Foundry Machine Co. v. Chicago G. W. Ry. Co., 75 Minn. 186, 77 N.W. 796; Gamble v. Sioux Falls National Bank, 51 S.D. 331, 213 N.W. 857; Davidow v. Bank of Detroit, 254 Mich. 447, 236 N.W. 828; First National Bank v. Stengel, 169 N.Y. Supp., 217 (Affirmed without report, 185 App. Div. 906, 171 N.Y. Supp., 1085, which in turn was affirmed in 227 N.Y. 659, 126 N.E. 906); Love, Supt. of Banks, v. Kraft-Phenix Cheese Corp., 162 Miss. 460, 139 So. 393; Baker-Cammack Textile Corp. v. Hood, Commissioner of Banks, 206 N.C. 782, 175 S.E. 151. Compare People, ex rel. Nelson, Auditor, v. Sheridan Trust Sav. Bank, 358 Ill. 290, 300, 193 N.E. 186, 191 (Certiorari denied, 295 U.S. 740, 55 S.Ct., 654, 79 L.Ed., 1687).
A contrary conclusion was reached in Andrew, Supt. of Banking, v. Security Trust Savings Bank, 214 Iowa 1199, 243 N.W. 542, and In re Canal Bank Trust Co., 181 La. 856, 160 So. 609, 99 A. L. R., 473. However, out of nine judges participating in the Iowa case, four dissented with an opinion to sustain their views.
After an exhaustive examination of numerous authorities, I submit that if a finding of a creditor-debtor relationship were made in the present case upon authority of the last mentioned cases, the result would be opposed to the great majority of holdings.
As already stated, my position herein is based upon the record before me. The members of this court can hardly be expected to take judicial notice of any relationship which may have existed between defendant in error and the bank different from that presented. Did the proof here reveal that the notice on the deposit slips designating the bank the depositor's agent for collection had been mutually and consistently ignored; that it was the known and accepted custom of the bank to give defendant in error immediate credit as cash for any deposits of checks made by him against which he could draw at will, and that he had done so, I should no doubt agree that upon the deposit of the checks in question he forthwith became a creditor of the bank, and should be treated as such. See Colorado National Bank of Denver v. Newton (C. C. A. 10), 80 F.2d 696; In re Kountze Bros. (C.C.A. 2), 79 F.2d 98; Bryant v. Williams (D.C.), 16 F.2d 159; Johnson v. First National Bank Trust Co. (D.C.), 8 Fed. Supp., 788 [Affirmed, 78 F.2d (C.C.A. 10), 535]; Old National Bank v. Gibson, 105 Wn. 578, 179 P. 117, 6 A.L.R., 247; Bassett, State Bank Commissioner, v. Mechanics Bank, 117 Conn. 407, 168 A. 12; Bath National Bank v. Ely N. Sonnenstrahl, Inc., 249 N.Y. 391, 164 N.E. 327.
Since, upon the record, the bank was agent of defendant in error for collection of the checks, its agency terminated when it was closed because of insolvency, and when its liquidating agent collected the proceeds of the checks he did so for defendant in error, the owner thereof, who is entitled to the amount so collected as a "preference" in accordance with the prayer of his petition. See Jones v. Kilbreth, 49 Ohio St. 401, 31 N.E. 346; Alleman v. Sayre, Recr., 79 W. Va. 763, 91 S.E. 805, L.R.A. 1917D, 1002; In re Jarmutowsky (C.C.A. 2), 249 F., 319, 161 C.C.A., 327, L.R.A. 1918E, 634; Salem Elevator Works, Inc., v. Commissioner of Banks, 252 Mass. 366, 148 N.E. 220; Andrew, Supt. of Banking, v. Security Trust Savings Bank, supra ( 214 Iowa 1199, 1211, 243 N.W. 542, 548).
Annotations pertinent to the issues in this case will be found in 11 A. L. R., beginning at page 1043; 16 A. L. R., beginning at page 1084; 42 A. L. R., beginning at page 492; 68 A. L. R., beginning at page 725; 99 A. L. R., beginning at page 486.
I cannot escape the conviction that the judgment of the Court of Appeals ought to be affirmed.