Bank of Poplar Bluff v. Millspaugh

• Citation: 275 S.W. 579
• Decision Date: 13 August 1925
• Docket Number: No. 3842.,3842.
• Parties: BANK OF POPLAR BLUFF v. MILLSPAUGH,
• Court: Court of Appeal of Missouri (US)

275 S.W. 579

BANK OF POPLAR BLUFF v. MILLSPAUGH,

No. 3842.

Springfield Court of Appeals. Missouri.

August 13, 1925.

Appeal from Circuit Court, Stoddard County; W. S. C. Walker, Judge.

Action by Bank of Poplar Bluff to compel allowance of a preferred claim against Frank C. Millspaugh, Commissioner of Finance, in charge of the liquidation of the Bank of Puxico. From a judgment denying a preference, plaintiff appeals. Reversed and remanded.

Oliver & Oliver, of Cape Girardeau, for appellant.

John A. Gloriod, of Poplar Bluff, for respondent.

BRADLEY, J.

This is an action to have allowed as a preferred claim a demand against the Bank of Puxico which failed and was placed in the hands of the commissioner of finance for liquidation. On trial below the claim was allowed as a general claim, but was denied preference. From the judgment plaintiff appealed.

The cause was tried upon an agreed statement of facts, which agreed statement in substance is as follows: December 11, 1923, Ethel Reichert had on deposit in the Bank of Puxico $5,000, and on that date she drew a draft upon said Bank of Puxico payable to plaintiff bank. This draft was delivered to plaintiff with direction to collect said $5,000 from the Bank of Puxico and place it to her credit in plaintiff bank. December 12th plaintiff bank presented said draft to the Bank of Puxico and demanded immediate payment, and said draft was accepted by said Bank of Puxico. The Bank of Puxico failed and refused to pay said draft or any part thereof throughout the 12th, 13th, 14th, and 15th of December, although during that time it paid checks, drafts, and claims drawn upon it by others. On December 15th the Bank of Puxico drew and mailed to plaintiff its draft dated December 14th for $5,000 on the Citizens' Trust Company of Gorin, Mo., payable to the order of plaintiff. Said trust company draft was received by plaintiff December 16th, and was forwarded in the usual way and presented to the drawee, the Citizens' Trust Company of Gorin, on December 19th, but payment was refused. The draft on the trust company was protested, and on December 19th plaintiff was advised by telegram of nonpayment. On same day, December 19th, plaintiff again demanded of the Bank of Puxico payment of the Reichert draft drawn on December 11th, and said Bank of Puxico promised to pay it, but did not do so. Again on December 20th and 21st plaintiff demanded payment, and each time the Bank of Puxico promised, but failed to pay.

From December 12th, when the Reichert draft was first presented and accepted to December 22d, the Bank of Puxico continued to receive deposits and pay numerous demands amounting in the aggregate to many times $5,000. There was in the till of the Bank of Puxico and to its credit in other solvent banks more than $5,000 on December 12th when the Reichert draft was first presented and accepted, and that condition continued to exist up to and including December 20th. The books of the Bank of Puxico showed at all times mentioned herein that it had on deposit with the Citizens' Trust Company of Gorin more than $5,000, but the books of the trust company showed only $640.46, and it is agreed that $640.46 is correct. December 22d the Bank of Puxico ceased to do business, but on December 20th the commissioner of finance, or the deputy in charge, charged the account of Ethel Reichert with the $5,000 draft drawn by her on December 11th.

[] The act of the plaintiff bank, under the existing facts, in sending to the Bank of Puxico the Reichert draft was equivalent to designating the Bank of Puxico as the agent of plaintiff to present the draft to itself, collect it, and send the money to plaintiff. In other words, the act of the plaintiff bank in sending the Reichert draft to the Bank of Puxico for collection and remittance created between the plaintiff bank and the Bank of Puxico the relation of principal and agent. Midland Nat. Bank v. Brightwell, 148 Mo. 358, 49 S. W. 994, 71 Am. St. Rep. 608; Capital Nat. Bank v. Coldwater Nat. Bank, 49 Neb. 786, 69 N. W. 115, 59 Am. St. Rep. 572; State v. Bank of Commerce, 61 Neb. 181, 85 N. W. 43, 52 L. R. A. 858; State Nat. Bank y. First Nat. Bank, 124 Ark. 531, 187 S. W. 673; Goodyear Tire & Rubber Co. v. Hanover State Bank, 109 Kan. 772, 204 P. 992, 21 A. L. R. 677; Federal Reserve Bank of Richmond v. Bohannan (Va.) 127 S. E. 161; Federal Reserve Bank of Richmond v. Peters, 139 Va. 45, 123 S. E. 379; Board of Supervisors v. Prince Edward-Lunenburg County Bank, 138 Va. 333, 121 S. E. 903; Nyssa-Arcadia Drainage Dist. v. First Nat. Bank (D. C.) 3 F. (2d) 648.

In Midland Nat. Bank v. Brightwell, supra, the court said:

"When a note or draft is sent by one individual or bank to another bank for collection and a remitting of the proceeds to the sender, the relation of principal and agent is created, and not that of creditor and debtor."

[] When the agent, the collecting bank, has collected the item sent to it for collection and remittance, it holds the proceeds, according to the great weight of authority, prior to remittance, as trustee for the sender, unless the two banks, the sender and the collecting bank, are transacting — business with each other on what is known as the reciprocal accounts method, about which we shall have more to say, infra. If the money is sent in remittance, all the authorities agree that the transaction is final, and the forwarding bank's title to the money after it leaves the hands of the collecting bank is superior to all claims against the collecting bank. Federal Reserve Bank of Richmond v. Peters, supra, 139 Va. 45, 123 S. E. loc. cit. 382. The divergence of opinion, when the reciprocal accounts method does not exist, is upon the legal effect of the collecting bank remitting by draft instead of sending the money. Some authorities hold that the act of remitting by draft changes the theretofore relation of principal and agent to that of debtor and creditor. Aiken v. Jones, 93 Tenn. 353, 27 S. W. 669, 25 L. R. A. 523, 42 Am. St. Rep. 921; Sayles v. Cox, 95 Tenn. 579, 32 S. W. 626, 32 L. R. A. 715, 42 Am. St. Rep. 940. Also some authorities hold that, where an item for collection is sent by one bank to another in the usual course of business and without instructions, only the relation of debtor and creditor is created. United States Nat. Bank v. Glanton, 146 Ga. 786, 92 S. E. 625, L. R. A. 1917F, 600; Union Nat. Bank v. Citizens' Bank, 153 Ind. 44, 54 N. E. 97; Peters Shoe Co. v. Murray, 31 Tex. Civ. App. 259, 71 S. W. 977.

Also some cases have been ruled because of a reciprocal accounts arrangement between the forwarding bank and the collecting bank. Federal Reserve Bank of Richmond v. Peters, 139 Va. 53, 123 S. E. loc. cit. 382. The reciprocal accounts method and the remittance method are described in Federal Reserve Bank of Richmond v. Peters, supra, as follows:

"In order to make collections of checks handled by them, banks usually adopt one of two methods—reciprocal accounts, or remittance. Under the reciprocal accounts method, the collecting bank, upon receipt of payment of the checks, gives credit upon its books to the forwarding bank, and the forwarding bank charges the collecting bank upon its books. They settle from time to time according as the balance accumulates, with the one or the other, Under this method, as soon as the collection is made the relation of the banks is that of creditor and debtor. Under the remittance method the forwarding bank sends the checks to the collecting bank with instructions to collect them and remit immediately. The collecting bank is not authorized to retain the proceeds in its hands, and therefore acts only as an agent for the forwarding bank."

To hold that the relation of principal and agent, when the reciprocal accounts course of business does not exist, is changed to that of debtor and creditor by collecting an item sent for collection and remittance does not appeal to us as sound reason. Neither is it sound, in our opinion, to hold that the relation of principal and agent is changed to that of debtor and creditor by the mere act of remitting by draft instead of sending the cash. Either holding compels the sender of the item to become a depositor, a creditor, in the true sense of the term, of the collecting bank whether such is desired or not. If an item is sent to an individual for collection and remittance, and he collects, but fails to remit or remits by check or draft, and the check or draft, for any reason, is not paid, the individual remains the agent of the sender. We can see no reason why the same rule should not apply to a bank.

We think that the correct and only reasonable and just rule is laid down in 3 R. C. L. p. 633, § 261, where, in discussing the question of title to the proceeds of collections made by banks, this language is used:

"These principles must always be borne in mind in considering the question as to the title to the proceeds of collections by banks, as it necessarily follows that, if the title to the paper to be collected passed to the bank, the proceeds of the collection will belong to it, and the bank will be merely a general debtor of the customer; whereas, if the paper was deposited for collection merely, as title thereto remains in the customer, title to the proceeds will not necessarily pass to the bank. When it is finally determined that a deposit of a check or draft was for collection only and vested no title thereto in the bank, the question still remains as to the title to the proceeds of such check or draft. The question may be said to be simply one of the intention of the parties. If they intended that the proceeds should be remitted immediately upon receipt thereof, or if in any other way it can be shown that the parties intended that the proceeds of the cheek as well as the check itself should remain the property of the owner, such intention will control and the bank will not take title to the proceeds."

In support of the...