Bank of Republic v. Republic State Bank

• Decision Date: 28 September 1931
• Citation: 42 S.W.2d 27,328 Mo. 848
• Parties: Bank of Republic, Appellant, v. Republic State Bank et al
• Court: Missouri Supreme Court

42 S.W.2d 27

328 Mo. 848

Bank of Republic, Appellant, v. Republic State Bank et al

Supreme Court of Missouri

September 28, 1931

Certified from Springfield Court of Appeals.

Reversed and remanded (with directions).

Neale Newman & Turner for appellant.

Upon the facts stipulated in this case the finding of the court should have been in favor of the plaintiff and against the defendants. Bank of Poplar Bluff v. Millspaugh, 275 S.W. 579; Bank of Poplar Bluff v. Millspaugh, 281 S.W. 733; Federal Reserve Bank v. Millspaugh, 275 S.W. 583; Federal Reserve Bank v. Millspaugh, 282 S.W. 706; Federal Reserve Bank v. Quigley, 284 S.W 164; Gentry County Drainage District v. Farmers & Mechanics Bank, 5 S.W.2d 1110; Farmers Bank v. Cantley, 16 S.W.2d 642.

Farrington & Curtis for respondents.

(1) In order that a claim against a closed or insolvent bank may be preferred, there must be a showing of a trust relation: the relation must be that of principal and agent, and if it be that of debtor and creditor no preference can be allowed. Bank v. Brightwell, 148 Mo. 358; May v. Hughesville Bank, 291 S.W. 170; American Bank v. Peoples Bank, 255 S.W. 945; Utley v. Hill, 155 Mo. 259; Allen Grocery Co. v. Bank of Buchanan County, 192 Mo.App. 487. (2) On the facts as stipulated, there was no showing of a trust relation, either by express agreement between the parties, by implication, nor by a trust ex maleficio; the relation was purely that of debtor and creditor, and appellant was not entitled to a preference. American Bank v. Peoples Bank, 255 S.W. 945; Federal Reserve Bank v. Millspaugh, 282 S.W. 708. (3) The holder of a draft on a bank which becomes insolvent has no claim for preference because of such. Such holder must go further and prove a trust relationship. 7 C. J. 751; Jewett v. Yardley, 81 F. 920; Clark v. Chicago Title Co., 57 N.E. 1061, 53 L. R. A. 2321. (4) Unless principal-and-agent relation be shown, holder of draft to secure a preference must show bank was insolvent when draft was issued and that the officers knew same and that the assets of the bank were augmented by the transaction. Cottondale Planting Co. v. Bank, 286 S.W. 425; May v. Bank of Hughesville, 291 S.W. 170; St. Louis & San Francisco Ry. Co. v. Millspaugh, 278 S.W. 786.

OPINION

Ellison, J.

The plaintiff, Bank of Republic, brought this suit in the Circuit Court of Greene County against the insolvent Republic State Bank, and S. L. Cantley, Commissioner of Finance, and Martin L. Howard, Special Deputy Commissioner, in charge of the liquidation thereof. The object of the action is to establish a preferred claim against the assets of the failed bank in the amount of $ 242.74, representing a bank draft for that sum which the plaintiff bank accepted from the defendant bank on the day the latter closed, April 17, 1928, in settlement of a balance due on items cleared between the two banks that day.

The circuit court denied the preference. The plaintiff bank appealed to the Springfield Court of Appeals, which, in an opinion reported in 24 S.W.2d 678, took the opposite view, reversing the judgment and remanding the cause on authority of one of its former decisions, Bank of Poplar Bluff v. Millspaugh, 275 S.W. 579, the opinion wherein was, on certification to this court, adopted in toto in 313 Mo. 412, 281 S.W. 733, 47 A. L. R. 754; also on authority of Federal Reserve Bank of St. Louis v. Millspaugh (Sp. Ct. App.), 275 S.W. 583, approved on certification to this court in 314 Mo. 1, 282 S.W. 706, also following Farmers' Bank of Bowling Green v. Cantley (St. L. Ct. App.), 16 S.W.2d 642.

But inasmuch as the St. Louis Court of Appeals in an earlier case, American Bank of DeSoto v. People's Bank of DeSoto, 255 S.W. 943, had ruled on similar facts that no preference was allowable; and inasmuch as this court failed in the Poplar Bluff case expressly to overrule the American Bank case, though the former was certified here because of supposed conflict with the latter; and since the Federal Reserve Bank case also was certified to this court for the same reason, but this court held in that case (314 Mo. l. c. 9, 282 S.W. l. c. 708) that our opinion in the Poplar Bluff case found there was no conflict between it and the American Bank case: for these reasons, we say, the instant case also is certified to us. In short, this makes the third case the Springfield Court of Appeals has certified to this court because of conflict with the American Bank case; and in view of the supposed ambiguity or conflict in our own decisions in the Poplar Bluff and Federal Reserve Bank cases, we are, in effect, now asked to say definitely whether the American Bank case is overruled.

This cause was tried below on an agreed statement of facts which may be condensed into a paragraph. Both the appellant and respondent banks were organized under the laws of this State, and were located on opposite sides of the street at Republic in Greene County. Neither was a depositor nor carried any kind of an account with the other. But for years it had been their daily custom to clear or exchange direct checks and other items which each had cashed or otherwise acquired for collection, drawn against the other; and for the bank which had the lesser total to give a draft to the other for the balance due on the day's clearings. On April 17, 1928, a balance of $ 242.74 was due the appellant bank, and the respondent bank accordingly gave the draft in suit for that amount drawn against a Springfield (Missouri) bank. The items presented for clearance by the appellant bank, and paid, in part, by the draft, were all checks on the respondent bank, and they were all good -- that is, the drawer of each check had a balance to his credit in the respondent bank sufficient to pay the check; and the checks were in fact charged by the respondent bank later that day against the accounts on which they were drawn. When the respondent bank closed its doors at the end of the day it had in its vault and in solvent correspondent banks, particularly in the aforesaid Springfield bank, more than enough money to pay the draft, but the draft was not paid when it reached the Springfield bank in due course the next day, April 18, because the drawer, the respondent Republic State Bank, in the meantime had closed and ceased to do business. It is not claimed the officers of the respondent bank knew it was insolvent when they issued the draft.

We shall not attempt to set out the facts in the Poplar Bluff case, 275 S.W. 579, 281 S.W. 733, 313 Mo. 412, 47 A. L. R. 754, and the Federal Reserve Bank case, 275 S.W. 583, 282 S.W. 706, 314 Mo. 1. Both must be read to get a full understanding of the points involved here. It will be sufficient to say they hold, in substance, that when items drawn on or payable at a bank are sent to that bank for collection, the bank is thereby made the agent of the forwarder to collect the items from itself and to remit the proceeds. And if items drawn against the bank (such as drafts) are accepted, or items payable at the bank (such as checks) are charged to the accounts of the makers, the bank thereafter stands seized of the proceeds thus collected as trustee for the forwarder. And even though the bank is further authorized by the contract under which the collection was forwarded, or by custom, to remit the collection proceeds in exchange, usually by draft, yet if the bank fails before the draft is paid, the owners or forwarders of the items will have a preferred claim against the assets of the failed bank. Both the Poplar Bluff case and the Federal Reserve Bank case, following and quoting from Federal Reserve Bank of Richmond v. Peters, 139 Va. 45, 123 S.E. 379, 42 A. L. R. 742, hold that when the collecting bank remits the collection proceeds by draft, the draft operates as an equitable assignment pro tanto of whatever funds the issuing bank may have on deposit with the drawee bank.

Further, both cases concede that when the forwarding and collecting banks have a "reciprocal accounts" arrangement, whereby the former allows the latter to credit the proceeds of collections to an account in its (the forwarding bank's) favor, the relation created is merely one of debtor and creditor, not of principal and agent or trustee, and no preferred claim could be granted for collection proceeds thus on deposit in the hands of the collecting bank if it should fail.

In the American Bank case, 255 S.W. 943, the facts were almost exactly like those before us now: that is to say, in that case two banks in the same town cleared checks and other items directly with each other, without sending them for collection through the mail. Neither bank ever had been a depositor in the other. On the day one bank failed it had given the other a draft for the balance due on clearings which would have been good if the drawer bank had not failed. The payee bank sought to establish the amount of the draft as a preferred claim against the assets of the failed bank, contending the items in its clearing list were presented across the counter of the failed bank for collection from itself, and that the latter bank in honoring the items and issuing its draft for the balance due thereon acted as agent and trustee for the presenting bank. The St. Louis Court of Appeals vigorously disapproved this contention saying the items were presented for payment, not for collection, and that when the presenting bank accepted the draft of the payee bank in settlement of the balance due a debtor and creditor relation was created between the two banks which gave the presenting bank no right to a preferred claim. We shall revert to this question later. All we care to say here is that there was clearly no "reciprocal accounts" relation between the two banks. Also, it is to be noted ...