Acme Hay & Mill Feed Co. v. Metropolitan National Bank

• Decision Date: 11 December 1924
• Docket Number: 36012
• Citation: 201 N.W. 129,198 Iowa 1337
• Parties: ACME HAY & MILL FEED COMPANY, Appellant, v. METROPOLITAN NATIONAL BANK, Intervener, Appellee
• Court: Iowa Supreme Court

201 N.W. 129

198 Iowa 1337

ACME HAY & MILL FEED COMPANY, Appellant, v. METROPOLITAN NATIONAL BANK, Intervener, Appellee

No. 36012

Supreme Court of Iowa, Des Moines

December 11, 1924

Appeal from Woodbury District Court.--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.

Affirmed.

Naglestad Pizey & Johnson, for appellant.

Kinding McGill, Stewart & Hatfield, for appellee.

VERMILION J. ARTHUR, C. J., and EVANS and STEVENS, JJ., concur.

OPINION

VERMILION, J.

It appears without dispute that the defendant the Rutherford-Brede Company, of Minneapolis, Minnesota, drew a sight draft on the plaintiff and appellant, the Acme Hay & Mill Feed Company, for $ 547.20, payable to the intervenor, 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 the supposed debtor of the defendant. 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. Fresno 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 it was 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 3060-a52, Code Supplement, 1913 (Section 9512, Code of 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 the creditor of the drawer. 2 Michie on Banks and Banking, Section 127; Morrison v. Farmers & Mer. Bank, 9 Okla. 697, 701 (60 P. 273); Krafft v. Citizens' Bank, 139 A.D. 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 Gas Light Co. v. Middlesex County 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, pages 210 and 211, 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 that 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 (17 L.R.A. 291). Among others so holding are Perth Amboy Gas Light Co. v. Middlesex County Bank, supra; Gulf States Lbr. Co. v. Citizens First Nat. Bank, 30 Ga.App. 709 (119 S.E. 426); Balbach v. Frelinghuysen, 15 F. 675; National Gold Bank & Tr. Co. v. McDonald, 51 Cal. 64 (21 Am. Rep. 697); Latham v. Spragins, 162 N.C. 404 (78 S.E. 282); First Nat. Bank v. McMillan Bros., 15 Ga.App. 319 (83 S.E. 149); Hazlett v. Commercial Nat. Bank, 132 Pa. 118 (19 A. 55); Bank of Big Cabin v. English, 27 Okla. 334 (111 P. 386).

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, 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. 2 Michie on Banks and Banking, Section 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 2 Morse on Banks and Banking (5th Ed.), Section 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. Quinsigamond Nat. Bank, 172 Mass. 363 (52 N.E. 387); Hoffman v. First Nat. Bank, 46 N.J.L 604; Walker & Brock v. Ranlett Co., 89 Vt. 71 (93 A. 1054); National Bank of Webb City v. Everett, 136 Ga. 372 (71 S.E. 660); Fourth Nat. Bank v. Mayer, 89 Ga. 108 (14 S.E. 891); National Com. Bank v. Miller, 77 Ala. 168; Fourth Nat. Bank v. Bragg, 127 Va. 47 (102 S.E. 649); Ditch & Bros. v. Western Nat. Bank, 79 Md. 192 (29 A. 72, 47 Am. St. 375, 23 L.R.A. 164); Auto & Accessories Mfg. Co. v. Merchants' Nat. Bank, 116 Md. 179 (81 A. 294); Metropolitan Nat. Bank v. Loyd, 90 N.Y. 530; Cragie v. Hadley, 99 N.Y. 131 (1 N.E. 537); American Tr. & Sav. Bank v. Gueder Mfg. Co., 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 Nat. Bank v. Cairo Flour Co., (Tex. Civ. App.) 226 S.W. 499; Howe Grain Co. v. Crouch Grain Co., (Tex. Civ. App.) 211 S.W. 946; Plumas County Bank v. Bank of Rideout, 165 Cal. 126, 133 (131 P. 360, 47 L.R.A. [N. S.] 552); People v. Ballas, 55 Cal.App. 748 (204 P. 401); Ayres v. Farmers & Merch. Bank, 79 Mo. 421 (49 Am. Rep. 235); Southwest Nat. Bank v. House, 172 Mo.App. 197 (157 S.W. 809); Armstrong v. National Bank, 90 Ky. 431, 14 S.W. 411; Morrison v. Farmers & Merch. Bank, 9 Okla. 697, 701 (60 P. 273); Hobart Nat. Bank v. McMurrough, 24 Okla. 210 (103 P. 601); Scott v. McIntyre Co., 93 Kan. 508 (144 P. 1002, L.R.A. 1915 D 139); Noble v. Doughten, 72 Kan. 336 (83 P. 1048); Security Bank v. Northwestern Fuel Co., 58 Minn. 141 (59 N.W. 987); In re State Bank, 56 Minn. 119 (57 N.W. 336, 45 Am. St. 454); South Park F. & M. Co. v. Chicago G. W. R. 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, 109 Am. St. 925, 68 L.R.A. 964); 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); Cox Wholesale Groc. Co. v. National Bank, 107 Ark. 601 (156 S.W. 187); Security Nat. Bank v. Old Nat. Bank, 241 F. 1; In re Jarmulowsky, 249 F. 319 (L.R.A. 1918 E 634); St. Louis & S. F. R. Co. v. Johnston, 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...