Brown v. Sheldon State Bank

• Decision Date: 09 July 1908
• Citation: 117 N.W. 289,139 Iowa 83
• Parties: EARL W. BROWN ET AL, Appellees, v. SHELDON STATE BANK ET AL, Appellees, PEOPLES SAVINGS BANK OF SIOUX CITY ET AL, Appellants
• Court: Iowa Supreme Court

117 N.W. 289

139 Iowa 83

EARL W. BROWN ET AL, Appellees, v. SHELDON STATE BANK ET AL, Appellees, PEOPLES SAVINGS BANK OF SIOUX CITY ET AL, Appellants

Supreme Court of Iowa, Des Moines

July 9, 1908

Appeal from O'Brien District Court.--HON. F. R. GAYNOR, Judge.

THIS action was originally brought in equity, by stockholders in the defendant Sheldon State Bank, located at Sheldon O'Brien county, to wind up and settle the business and affairs of said bank, alleged to be insolvent. On application of the plaintiffs, R. W. Ady was appointed receiver, and given power usual in such cases. In due time the receiver gave notice to the creditors of the bank to present and file with the clerk of the court, their claims and demands, duly verified, etc. In response to such notice various creditors filed their claims, in some instances denominating the same as such, and in others the term "petition of intervention" being employed. Hearing being had upon the claims, some thereof were disallowed in whole or in part. Others were established as general claims only; preferences as demanded, being refused. The claimants aggrieved by the decree have united in bringing this appeal. In the opinion separate consideration will be given to each of the claims.--Modified and Affirmed.

Modified and affirmed.

Jepson & Jepson, for appellant Peoples Savings Bank.

O. H. Montzheimer and E. C. Herrick, for appellant L. T. Aldinger.

O. H. Montzheimer, for appellant Cedar Rapids National Bank.

John E. Orr and Gerrit Klay, for appellant School Township of Lynn.

David Algyer and Herrick & Herrick, for appellant Julius Mark.

Shull, Farnsworth & Sammis and Newman, Northup, Levison & Becker, for appellants National Bank of the Republic and Security National Bank.

W. D. Boiles, for Ady, Receiver, appellee.

BISHOP J. LADD, C. J., taking no part.

OPINION

BISHOP, J.

A motion to dismiss the appeal has been submitted with the case. We have examined into the grounds on which the motion is predicated, and reach the conclusion that it should be overruled. We need not enter upon a detailed discussion of such grounds.

First in order of presentation is the claim of the People's Savings Bank of Sioux City. This claim is based upon two instruments in writing, purporting, in usual form, to be certificates of deposit issued by the Sheldon bank. One thereof bears date September 5, 1903, and recites that "People's Savings Bank, has deposited in the Sheldon State Bank five thousand dollars, payable to the order of itself three months after date with interest at 6 per cent.," etc. "[Signed] Ed. C. Brown, Pr." The other bears date October 30, 1903, and is in the same form, and for the same amount as the first. On the first is an indorsement of credit in the sum of $ 2,717.53, and this, claimant alleges, represents "the credit balance to which said Sheldon State Bank was entitled on open account." The demand of claimant is for allowance of its claim as a deposit with preference, as provided for by statute. The demand for preference is resisted by the receiver, his contention being that the certificates evidence loans of money merely, and not deposits; accordingly, that the claimant should be assigned to the position of a general creditor. In the nature of a cross-demand it is charged, by the receiver, that at the time of his appointment the Sheldon bank had on deposit, on open account with the claimant bank, the sum of $ 2,717.53, to which he, as receiver, became entitled; that thereafter the claimant bank, without right or authority, attempted and pretended to appropriate said money, by crediting the amount thereof on the first of said certificates. An order requiring payment of said sum of money to the receiver, to be applied by him to the payment of a depositor's claims, is demanded. The claimant bank in reply, insists that the certificates represent actual deposits; that they were executed in the usual and ordinary course of business, and entered of record, reported upon, and treated in all respects as certificates of deposit. It admits that the credit on the first certificate of the deposit balance was made after the failure of the Sheldon bank, but insists that it had right to so appropriate and credit. The decree denied preference, and established the claim for the face amount of the certificates, with interest, as a general claim. And the claimant was ordered to pay over to the receiver the amount of the deposit account in its hands at the time of the failure.

Going to the evidence, it appears that the certificates in question are renewals of others previously issued, and it is reasonably clear that the issuance of each of the original certificates was on the suggestion of the Sheldon bank. Brown, the president of the bank, called by the receiver, testifies that the claimant bank was one of the Sioux City correspondents of his bank, and that he had an understanding with the president of said claimant bank to the effect that "whenever I wanted any money, he would try and take care of me." And he says that pursuant to such understanding, the original certificates were drawn up, and sent to the claimant bank, with the request that the sum named therein be placed to the credit of the Sheldon bank; that such credit was given, and the money was thereafter drawn out, by check or draft, as occasion arose therefor; that upon arrival of the time named in the certificates for payment, these renewal certificates were drawn up and forwarded, whereupon the claimant bank, after charging interest to the open account of the Sheldon bank, returned to it the original certificates. Taking this to be the fact situation, it becomes manifest that the transactions out of which grew the certificates in question amounted to loans of money. The certificates represent money borrowed, and not deposits. The facts of the case do not differ, in any material respect, from those appearing in our recent case of State v. Corning State Savings Bank, 136 Iowa 79, 113 N.W. 500. We there held that a transaction involving the issuance of a certificate--in form a certificate of deposit--by the Corning bank, which was forwarded to the Des Moines National Bank, with the understanding that a credit on open checking account should be entered in its favor, amounted to a loan of money, and not a deposit. The subject is elaborately discussed in the opinion in that case, and we need not, at this time, repeat the argument on which the conclusion was made to rest. See, also the opinion on a further appeal in the same case. 139 Iowa .

Considering, now, the contention for error in the order requiring the claimant bank to pay over the deposit fund in its hands at the time of the failure, we think the contention should be sustained. It is the rule in this State, as it is in many other jurisdictions, to allow set-off where parties are mutually indebted and one becomes insolvent. And it is not material that the indebtedness, sought to be canceled by offset, is not due at the time. Thomas v. Bank, 99 Iowa 202, 68 N.W. 780; Wikel v. Garrison, 82 Iowa 453, 48 N.W. 803; Swentzel v. Bank, 147 Pa. 140 (23 A. 415, 15 L. R. A. 310, 30 Am. St. Rep. 718); Thompson v. Trust Co., 130 Mich. 508 (90 N.W. 294, 97 Am. St. Rep. 494); Davis v. Mfg. Co., 114 N.C. 321 (19 S.E. 371, 23 L. R. A. 322); North Chicago Co. v. St. Louis Co., 152 U.S. 596 (14 S.Ct. 710, 38 L.Ed. 565); Van Wagoner v. Gaslight Co., 23 N.J.L. 283. The case last cited involved a bank failure, and it was said: "In cases of cross-indebtedness the assets of the bank consist only of the balance of the accounts. That is all the fund which the bank itself would have had to satisfy its creditors in case no receiver had been appointed. And there is no equality, and no equity, in putting a debtor of the bank, who has a just and legal set-off as against the corporation, in a worse position, and the creditors in a better position, by the failure of the bank and the appointment of a receiver."

Next in order is the claim of Julius Mark. The claim here in controversy is based upon what purports to be a certificate of deposit. The receiver filed a resistance, claiming that the certificate represented no more than a loan. The evidence shows the transaction, out of which the certificate arose, to be substantially like that appearing in the case of the claim of the People's Savings Bank, supra. The court rightly decreed that claimant was entitled to place only as a general creditor.

Next in order is the claim of the Cedar Rapids National Bank. The facts of this claim are that on November 2, 1903, the claimant bank sent by mail, to the Sheldon bank, for the purpose of collection and return, a draft, drawn by a third person on the First National Bank of Sheldon and held by the claimant bank under endorsement. The letter of transmittal, with inclosure, reached the Sheldon bank on November 3d; and, a few minutes before the bank closed its doors for the last time, the draft was presented to the First National Bank, and paid. On receipt of the money the Sheldon bank issued and mailed to claimant its draft in a corresponding amount, payable to claimant, and drawn on the National Bank of the Republic, Chicago. This draft reached the claimant bank on the following day, and was forwarded to Chicago, where, on November 6th, it was presented to the bank on which drawn, and payment was refused for want of funds. The demand of claimant is that the claim be allowed and paid in full, as one entitled to preference over all other creditors. By the decree the demand for preference was denied, and the claim was established only as a general claim. No good reason appears to us for denying the demand for preference. The money collected from the First National Bank was certainly in the...