Chetopa State Bank v. Farmers & Merchants State Bank

• Decision Date: 06 October 1923
• Docket Number: 25,014
• Citation: 218 P. 1000,114 Kan. 463
• Court: Kansas Supreme Court
• Parties: THE CHETOPA STATE BANK, Appellee, v. FARMERS & MERCHANTS STATE BANK and B. V. CURRY, Receiver, (LEWIS WILSON, Substituted,) Appellants

218 P. 1000

114 Kan. 463

THE CHETOPA STATE BANK, Appellee, v. FARMERS & MERCHANTS STATE BANK and B. V. CURRY, Receiver, (LEWIS WILSON, Substituted,) Appellants

No. 25,014

Supreme Court of Kansas

October 6, 1923

Decided July, 1923.

Appeal from Labette district court; ELMER C. CLARK, judge.

Case reversed.

SYLLABUS

SYLLABUS BY THE COURT.

1. INSOLVENT BANK--Facts to Be Established Before a Claim Can Be Allowed as a Preferred Claim. Before a claim can be allowed as a preferred claim against the receiver of an insolvent bank, it is necessary to establish, first, that the claim in question is a trust fund, and, second, that the fund in some form was a part of the assets of the bank which passed into the hands of the receiver.

2. SAME--Evidence Establishes Relation of Debtor and Creditor and Not That of Principal and Agent or Trustee--Claim Not Entitled to a Preference. The Chetopa State Bank received from its Kansas City correspondent checks aggregating $ 2,800, drawn upon the various banks at Chetopa, and sent its draft in payment therefor. In clearing that day it held checks drawn upon the F. & M. State Bank, some of which it had received that morning from its Kansas City correspondent and some of which it had taken over its own counter during the day, amounting to $ 2,000 (in excess of checks held by the F. & M. State Bank against it), and took in payment the draft of the F. & M. State Bank drawn on its Kansas City correspondent. The day this draft was presented for payment at Kansas City the bank commissioner took charge of the F. & M. State Bank, closed its doors and a receiver was appointed. The draft was protested. In an action by the Chetopa State Bank against the receiver, held that the relation created between the F. & M. State Bank and the Chetopa State Bank by the issuance of the draft, was that of debtor and creditor and not that of principal and agent or trustee and cestui que trust, and that plaintiff is not entitled to a preference.

Elmer W. Columbia, of Oswego, for the appellants.

Archie D. Neale, of Chetopa, for the appellee.

OPINION

HARVEY, J.:

This is an action against a receiver of a state bank for the amount of a draft issued by the bank before the receiver was appointed and to have the same declared a preferred lien upon the assets in the hands of the receiver. There was a trial to the court, which rendered judgment for plaintiff as prayed. The defendant has appealed and concedes that the claim should be allowed, but objects to that part of the judgment making it a preferred claim.

There is not much controversy about the facts. At the time the draft in question was issued there were three banks in Chetopa,--a National Bank, the Chetopa State Bank, plaintiff herein, and the Farmers & Merchants State Bank, for which a receiver was later appointed, defendant herein. On September 13, 1922, the Chetopa State Bank received from its Kansas City correspondent, the Commerce Trust Company, checks aggregating $ 2,801.01, which had been drawn upon the Chetopa banks, and it sent to the Commerce Trust Company in payment therefor, its draft for that amount. Some of these checks the exact amount is not shown, had been drawn upon the Farmers & Merchants State Bank. On the same day representatives of the three banks met at the National Bank for the purpose of clearing checks each had upon the other. The representative of the Chetopa State Bank had with him all checks which that bank had which had been drawn upon the Farmers & Merchants State Bank. Some of these were among the checks received by it that morning from its Kansas City correspondent and some of them were checks which it had taken in over its own counter during the day. The representative of the Farmers & Merchants State Bank had with him such checks as that bank had which had been drawn upon the Chetopa State Bank. In clearing the checks there was a balance due the Chetopa State Bank from the Farmers & Merchants State Bank of $ 2,039.81, and the Farmers & Merchants State Bank gave the Chetopa State Bank a draft for that amount, drawn on its Kansas City correspondent, the Commonwealth National Bank. Through some oversight this draft was not completed by protecting the same with the protectograph. It was sent to Kansas City, but because of its incomplete condition was returned for correction and was corrected by the Farmers & Merchants State Bank and redelivered to the Chetopa State Bank and then presented for payment to the Commonwealth National Bank on September 18, and was on that date protested for nonpayment. The Farmers & Merchants State Bank was taken charge of by the bank commissioner on September 18, its doors closed and later a receiver was appointed. The account of the Farmers & Merchants State Bank with its Kansas City correspondent, the Commonwealth National Bank, had been overdrawn continuously for several months, but the banks continued to do business with each other and the Commonwealth National Bank always paid the drafts of the Farmers & Merchants State Bank until the 18th of September, when the draft in question was presented. There is evidence tending to show that the Farmers & Merchants State Bank was insolvent prior to the time it was taken charge of by the bank commissioner, but there is no evidence to indicate that even if it was insolvent the officers of the bank knew that fact on the date the draft in question was issued, and it continued as a going concern, met and paid its obligations up until taken possession of by the bank commissioner.

Before a claim can be allowed as a preferred claim against a receiver of an insolvent bank it is necessary to establish, first, that the claim in question is a trust fund and, second, that the fund in question, in some form, became a part of the assets of the bank which came into the hands of the receiver. Many of the cases which have been considered by this court have involved the second question only. Here we are concerned with the first question, that is, did the draft issued by the Farmers & Merchants State Bank, under the circumstances above stated, constitute a trust fund? In other words, did the circumstances create the relation between the parties of trustee and a cestui que trust, or the relation of debtor and creditor? The appellee contends that the former relation was created. The appellant contends that the latter relation was created and this is the real question for decision.

Appellee contends that in presenting the checks for clearing it was acting as the agent of its Kansas City correspondent, but this cannot be true for the reason, first, that some of the checks which it presented for clearing were received over its own counter, and did not come from its Kansas City correspondent, and, second, it paid its Kansas City correspondent the amount of all the checks received from it and thereby became the absolute owner of them, just as any one becomes the owner of a check endorsed to him for which he paid value. So, the cases cited by counsel where the right to a preference turns upon the relation of principal and agent, are not in point.

Appellee contends that the relation of trustee and cestui que trust was created by the transaction by reason of the fact that the Farmers & Merchants State Bank was insolvent at the time it issued the draft and for the further reason that its account was then overdrawn with the Commonwealth National Bank; that the issuing of the draft was a violation of, and a crime under sections 3471-3474 of the General Statutes of 1915, commonly known as the "bad check law," and under section 2, chapter 71 of the Laws of 1921, which makes it a felony for the president, cashier or assistant cashier of a bank to draw a draft with intent to...