Acme Hay & Mill Feed Co. v. Metro. Nat. Bank of Minneapolis

• Decision Date: 11 December 1924
• Docket Number: No. 36012.,36012.
• Citation: 201 N.W. 129,198 Iowa 1337
• Court: Iowa Supreme Court
• Parties: ACME HAY & MILL FEED CO. v. METROPOLITAN NAT. BANK OF MINNEAPOLIS.

198 Iowa 1337

201 N.W. 129

ACME HAY & MILL FEED CO.

v.METROPOLITAN NAT. BANK OF MINNEAPOLIS.

No. 36012.

Supreme Court of Iowa.

Dec. 11, 1924.

Appeal from District Court, Woodbury County; A. O. Wakefield, Judge.

Action at law aided by attachment. The intervener claimed to be the owner of the money in the hands of the garnishee. From a judgment in favor of intervener, plaintiff appeals. Affirmed.Naglestad, Pizey & Johnson, of Sioux City, for appellant.

Kindig, McGill, Stewart & Hatfield, of Sioux City, for appellee.

VERMILION, J.

It appears without dispute that the defendant, the Rutherford-Brede Company of Minneapolis, Minn., drew a sight draft on the plaintiff and appellant, the Acme Hay & Mill Feed Company, for $547.20 payable to the intervener, Metropolitan National Bank of Minneapolis, to which was attached a bill of lading for a shipment to the plaintiff. The defendant was given credit in its account with the intervener bank for the amount of the draft, and the draft and bill of lading were forwarded by the intervener to the Toy National Bank of Sioux City for collection. The appellant paid the draft to the Sioux City bank, and commenced this action upon a claim, having no connection with the transaction out of which the draft arose, and caused the Toy National Bank to be garnished as a supposed debtor of the defendant.

[1][2] The intervener claimed to have been the owner of the draft and to be entitled to the proceeds thereof in the hands of the garnishee. The appellant insists that, inasmuch as the defendant did not withdraw the amount of its deposit with the intervener before the garnishment, the intervener did not become a holder of the draft in due course. This may be conceded, but the conclusion that the intervener was not a holder in due course is not determinative of its right to the proceeds of the draft. Appellant is not defending against the draft; that has been paid. It is seeking to hold the proceeds of the draft in the hands of the garnishee as the property of the defendant. Of course, by its garnishment it acquired no greater right to the proceeds of the draft than the defendant had. The question at issue is one of title. The rights of the intervener depend, not upon whether it was a holder of the draft in due course, as that term is defined in the Negotiable Instruments Act, but upon whether it was the owner of the draft. It cannot be doubted that the intervener might have been the owner of the draft and entitled to the amount realized on its payment and still not have been a holder in due course. Trevisol v. Fruit Growers' Co., 195 Iowa, 1377, 192 N. W. 517. One might be the unquestioned owner of a negotiable instrument and yet, by reason of having taken it after due or with notice of its previous dishonor, or under other circumstances defined by statute as depriving him of the rights of a holder in due course, not be such a holder. Section 3060a52, Code Supplement 1913 (section 9512, Code 1924). If the intervener was the owner of the draft, the fact that it was not a holder in due course would not affect its right to the proceeds upon payment as against a creditor of the drawer. Michie on Banks and Banking, § 127; Morrison v. Bank, 9 Okl. 701, 60 P. 273;Krafft v. Citizens' Bank, 139 App. Div. 610, 124 N. Y. S. 214;Brown v. Yukon Nat. Bank, 138 Ark. 210, 209 S. W. 734.

The vital question in the case is whether the bank became the owner of the draft or merely a bailee--whether it took it as owner or for collection. Perth Amboy Gaslight Co. v. Bank, 60 N. J. Eq. 84, 45 A. 704. Upon this question there is some conflict of authority. An apparent divergence of opinion in many of the cases may be reconciled upon a consideration of the varying facts presented. With a few exceptions, the rule is generally recognized that the determination of the question is controlled, in the absence of an express agreement, by the intention of the parties as shown by the attending circumstances. The difference of opinion to be found, both among text-writers and in the adjudicated cases, as to the presumption that shall obtain where nothing more appears than the mere indorsement to and deposit with a bank by a customer of a check or draft upon a third party, where the customer is given credit for the amount upon his account, and has an immediate right to draw upon it, appears, however, to be irreconcilable. It is said by Zane, in his work on Banks and Banking, page 210, that such a transaction is in principle a bailment; that the right to check against the deposit is a mere privilege; that the collecting bank takes no risk, because it has the right to revoke the credit if the collection is not made, and to charge the paper back to the depositor; that it does not help the matter to appeal to custom, or to say it is a question of fact. There are cases holding that, when checks or drafts are deposited in a bank, the presumption is they are deposited for collection merely. A leading case announcing this doctrine, and one said by Zane to state the true rule, is Beal v. City of Somerville, 50 F. 647, 1 C. C. A. 598, 17 L. R. A. 291. Among others so holding are Perth Amboy Gaslight Co. v. Bank, supra; Gulf States Lumber Co. v. Bank, 30 Ga. App. 709, 119 S. E. 426;Balbach v. Frelinghuysen (C. C.) 15 F. 675;National Gold Bank v. McDonald, 51 Cal. 64, 21 Am. Rep. 697;Latham v. Spragins, 162 N. C. 404, 78 S. E. 282;First National Bank v. McMillan, 15 Ga. App. 319, 83 S. E. 149;Hazlett v. Bank, 132 Pa. 118, 19 A. 55;Bank of Big Cabin v. English, 27 Okl. 334, 111 P. 386.

[3] The rule supported by the very decided weight of authority is, however, that, where a check or draft is deposited by a customer, and credit given therefor by the bank on his account as cash and against which he has an immediate right to draw, in the absence of any understanding as to how it shall be treated, or proof of circumstances from which such an understanding may be inferred, prima facie the title to the paper passes to the bank.

Michie on Banks and Banking, § 127, states the rule thus:

“A deposit in a bank of a bill, check, draft, or other evidence of debt in the ordinary course of business, whereby the depositor receives a credit against which he may draw, operates to transfer the title to the bank, in the absence of a usage, custom, or of any oral or other agreement that the effect of the transaction shall be otherwise. * * * In such case the bank is a purchaser and absolute owner of the paper, and not a mere agent to collect the same for the payee, but is not necessarily a bona fide purchaser for value and without notice. * * * This is the rule, although the bank has the right to charge dishonored paper to the depositor instead of proceeding against the maker.”

In Morse on Bank and Banking, § 575, it is said:

“A deposit being made by a depositor in a bank in the ordinary course of business of money or drafts or checks received as money, the title to the money or drafts or checks is immediately vested in and becomes the property of the bank.”

The following cases support the rule that prima facie the bank by such a transaction becomes the owner of the paper: Taft v. Bank, 172 Mass. 363, 52 N. E. 387; Hoffman v. Bank, 46 N. J. Law, 604; Walker v. Ranlett, 89 Vt. 71, 93 A. 1054;National Bank of Webb City v. Everett, 136 Ga. 373, 71 S. E. 660;Fourth National Bank v. Mayer, 89 Ga. 108, 14 S. E. 891;National Commercial Bank v. Miller, 77 Ala. 168, 54 Am. Rep. 50;Fourth National Bank v. Bragg, 127 Va. 47, 102 S. E. 649, 11 A. L. R. 1034;Ditch v. Bank, 79 Md. 192, 29 A. 72, 23 L. R. A. 164, 47 Am. St. Rep. 375;Auto & Accessories Co. v. Bank, 116 Md. 179, 81 A. 294;Metropolitan National Bank v. Loyd, 90 N. Y. 530;Craigie v. Hadley, 99 N. Y. 131, 1 N. E. 537, 52 Am. Rep. 9;American Trust & Savings Bank v. Gueder, 150 Ill. 336, 37 N. E. 227;Williams v. Cox, 97 Tenn. 555, 37 S. W. 282;Friberg v. Cox, 97 Tenn. 550, 37 S. W. 283;Provident National Bank v. Flour Co. (Tex. Civ. App.) 226 S. W. 499;Howe Grain Co. v. Crouch (Tex. Civ. App.) 211 S. W. 947;Plumas County Bank v. Bank, 165 Cal. 133, 131 P. 360, 47 L. R. A. (N. S.) 552;People v. Ballas, 55 Cal. App. 748, 204 P. 401;Ayres v. Bank, 79 Mo. 421, 49 Am. Rep. 235;Southwest National Bank, 172 Mo. App. 197, 157 S. W. 809;Armstrong v. National Bank, 90 Ky. 431, 14 S. W. 411, 9 L. R. A. 553;Morrison v. Bank, 9 Okl. 701, 60 P. 273;Hobart Bank v. McMurrough, 24 Okl. 210, 103 P. 601;Scott v. McIntyre, 93 Kan. 508, 144 P. 1002, L. R. A. 1915D, 139;Noble v. Doughten, 72 Kan. 336, 83 P. 1048, 3 L. R. A. (N. S.) 1167;Security Bank v. Fuel Co., 58 Minn. 141, 59 N. W. 987;In re State Bank, 56 Minn. 119, 57 N. W. 336, 45 Am. St. Rep. 454;South Park Foundry & Machine Co. v. Chicago G. W. Ry. Co., 75 Minn. 186, 77 N. W. 796;Higgins v. Hayden, 53 Neb. 61, 73 N. W. 280;Aebi v. Bank of Evansville, 124 Wis. 73, 102 N. W. 329, 68 L. R. A. 964, 109 Am. St. Rep. 925;Brown v. Yukon Nat. Bank, 138 Ark. 210, 209 S. W. 734;National Bank of Commerce v. Bossemeyer, 101 Neb. 96, 162 N. W. 503, L. R. A. 1917E, 374;Cox Wholesale Grocery Co. v. Nat. Bank, 107 Ark. 601, 156 S. W. 187;Security National Bank v. Bank, 241 F. 1, 154 C. C. A. 1;In re Jarmulowsky, 249 F. 319, 161 C. C. A. 327, L. R. A. 1918E, 635;St. Louis & S. F. Ry. Co. v. Johnston (C. C.) 27 F. 243. The case last cited was reversed by the United States Supreme Court upon another proposition, the court saying that this question was one of fact rather than of law. The presumption that the bank was the owner of paper so deposited was recognized in Burton v. U. S., 196 U. S. 283, 25 S. Ct. 243, 49 L. Ed. 482.

Importance in varying degrees is given, in the majority of the cases, to the fact that the depositor has an immediate right to check against the credit so given him, as indicating that the bank took title to the paper, while in those holding that the bank is presumed to be a mere collector, this is said to be but a provisional credit, a privilege given...