Cottondale Planting Company v. Diehlstadt Bank

• Decision Date: 17 July 1926
• Parties: COTTONDALE PLANTING COMPANY, APPELLANT, v. DIEHLSTADT BANK, RESPONDENT.
• Court: Missouri Court of Appeals

286 S.W. 425

220 Mo.App. 265

COTTONDALE PLANTING COMPANY, APPELLANT, v. DIEHLSTADT BANK, RESPONDENT.

Court of Appeals of Missouri, Springfield

July 17, 1926

Appeal from the Circuit Court of Scott County.--Hon. Frank Kelly Judge.

AFFIRMED.

Judgment affirmed.

H. C Blanton for appellant.

(1) The claimant is entitled to have its demand allowed as a preferred claim under the first count in appellant's petition if the draft were left for collection because the amount claimed constitutes a trust fund. (a) Where a bank has credited an account with a draft, and even allowed depositor to check against the same, if the bank reserved the right to charge back the amount of the draft if not collected, the bank did not become the owner of the draft and the relation of debtor and creditor did not exist but that of principal and agent. Midwest Nat'l Bank v. Parker Co., 245 S.W. 217, 220, 211 Mo.App. 413; Briggance v. Bank of Cooter, 200 S.W. 668; Citizens State Bank v Ferson, 208 S.W. 136; Midland Nat'l Bank v. Brightwell, 148 Mo. 358, 49 S.W. 994; Bank of Buchanan County v. Gordon, 250 S.W. 648, 650. (b) Where draft is accepted by a bank for collection only, the proceeds remain the property of the drawer and the relation is that of principal and agent and not of creditor and debtor. Midland Nat'l Bank v. Brightwell, 148 Mo. 358, 49 S.W. 994; Thompson v. Bank of Syracuse, 278 S.W. 810; Bank v. Sanford, Assignee, 62 Mo.App. 394. (c) Where a collection has not been made before collecting bank has become insolvent, any money thereafter received is the property of the principal and no change of the relationship of principal and agent to that of creditor and debtor can be effected after the insolvency of the bank. 3 R. C. L., 635, sec. 264; 7 C. J., 625, sec. 301; Nat'l Butchers Bank v. Hubbell, 117 N.Y. 384, 22 N.E. 1031. (d) Where assets of an insolvent bank, which included trust fund, were greater than such fund, cestui has a preferred claim; if his fund augmented the funds of the bank. Nichols v. Bank of Syracuse, 278 S.W. 793; Thompson v. Bank of Syracuse, 278 S.W. 811; Harrison v. Smith, 83 Mo. 210; Stoller v. Coates, 88 Mo. 514; 3 R. C. L., 554, Secs. 1811; 3 R. C. L. 638, sec. 268. (e) When bank funds and trust funds are mingled, cestui que trust has a lien on whole of assets. Nichols v. Bank of Syracuse, 278 S.W. 793; Thompson v. Bank of Syracuse, 278 S.W. 813; Richardson v. New Orleans Co., 102 F. 780; Midland Bank v. Brightwell, 148 Mo. 358, 49 S.W. 994. (2) Claimant is entitled to have its demand allowed as a preferred claim under second count of its petition if the draft were left as a deposit, because of the fraudulent conduct of the bank through its officers. (a) Where a hopelessly insolvent bank receives a deposit it commits a fraud and depositor may rescind and follow the money into the hands of the assignee of the insolvent bank; if its officers knew of its condition. Fisse, Assignee, v. Dietrich, 3 Mo.App. 584 (Memorandum decision); Frisco Rwy. v. Milspaugh, 278 S.W. 786; 3 R. C. L., 557, sec. 184; 3 R. C. L., 635, sec. 264; 7 C. J., 604, sec. 254; 7 C. J., 730, sec. 484. (b) A bank is insolvent when unable to meet its liabilities as they become due in the ordinary course of business, or, in shorter terms, when it cannot pay its deposits on demand in accordance with its promise. Fed. Res. Bank v. Idaho Assn., 8 F.2d 927; 7 C. J., 727, sec. 482; Eads v. Orcutt, 79 Mo.App. 524. (c) It is the duty of the officers of a bank to know its condition, and it is presumed they performed their duty and did know of such condition. Eads v. Orcutt, 79 Mo.App. 524. (d) Officers' knowledge of insolvent condition of the bank may be inferred from the facts and circumstances. Write v. Poole, 272 S.W. 1027; Speer v. Burlingame, 61 Mo.App. 87; Fed. Reserve Bank v. Idaho Assn., 8 F. (2d), p. 928; Sec. 11764, R. S. 1919.

George W. Kirk for respondent.

(1) The claimant in this case is not entitled to have its demand allowed as a preferred claim under the first count in plaintiff's petition, inasmuch as the relation established by the transaction in question is that of debtor and creditor, and not that of principal and agent. (a) Where a bank credits an account with a draft or other negotiable instrument and the depositor is allowed to check against the same or has the right to do so, the bank becomes the owner of the draft, even if the bank has reserved the right to charge back the amount of the draft if not collected, and the relationship established is that of debtor and creditor. Magee on Banks and Banking, page 478; Morse on Banks and Banking, page 424; Ayres v. Farmers & Merchants Bank, 79 Mo. 421; Bullene v. Coates et al., 79 Mo. 426; Ayres v. Lebold et al., 79 Mo. 426; Handley v. Globe Refining Company, 106 Mo.App. 20; Flannery et al. v. Coates et al., 80 Mo. 444. (b) Where the relations of debtor and creditor is established by the deposit of a draft, and the depositor receives immediate credit on his demand deposits for same, the question of the time of collection or the mode of collection of draft is no concern of a depositor so long as the bank uses ordinary diligence and care, and if collection is not fully completed until after the insolvency of bank, this does not affect in any manner the relation originally established of debtor and creditor. Ayres v. Farmers Bank, 79 Mo. 421; Bullene v. Coates et al., 79 Mo. 426; Flannery et al. v. Coates, et al., 80 Mo. 444; Kavanaugh v. Farmers Bank of Maitland, 59 Mo.App. 540. (2) Claimant is not entitled to have its demand allowed as a preferred claim under his second count, as he has failed completely in proving that the Diehlstadt Bank was insolvent. (a) The burden of proof in proving insolvency rests on the party who charges insolvency and the depositor must affirmatively show that the bank was insolvent when it received his deposit. Furber v. Dane, 204 Mass. 412, 90 N.E. 859, 27 L. R. A. (N. S.) 808; 7 Corpus Juris, page 730, Footnote (g). (b) Insolvency under the statutes relating to the recovering of deposits, is an inability to meet the ordinary demands made against the bank in the usual and ordinary course of business. State v. Darrah, 152 Mo. 522; Eads v. Orcutt, 79 Mo.App. 511, 524; 7 Corpus Juris, par. 482, page 727; Dodge v. Mastin, 17 F. 660; Atwater v. American Exchange National Bank, 152 Ill. 605, 38 N.E. 1017; Skarda v. State, 175 S.W. 1190. (c) To constitute fraud in receiving a deposit when insolvent, which will authorize a rescission by the depositor and a recovery from receiver, subsequently appointed, the officers of the bank must have known or believed that it was insolvent when the deposit was received; such knowledge cannot be presumed. The fact that the officials knew the bank to be embarrassed is not sufficient. The knowledge which a director shall have in order to permit a rescission of a deposit and a preference, means a guilty knowledge of the insolvency of the bank. 7 Corpus Juris, page 730, footnote (f); Quinn v. Earle, 95 F. 728; Furber v. Dane, 90 N.E. 859; Utley v. Hill, 155 Mo. 232 (l. c. 270-71).

BRADLEY, J. Cox, P. J., and Bailey, J., concur.

OPINION

BRADLEY, J.--

This is an action to have allowed as a preferred claim a demand against the Diehlstadt Bank in the hands of the commissioner of finance for liquidation. The court below refused to give the demand preference and this appeal followed.

Plaintiff's claim for preference is based on two theories, and these are stated in separate counts in the petition. The first theory is that in handling the draft in question the relation of principal and agent, and not that of debtor and creditor, existed. The second theory is that even though the relation of debtor and creditor was created by the transaction respecting the draft, plaintiff is, nevertheless, entitled to a preference on the ground that defendant bank was hopelessly insolvent and was so known to be by its officers when the draft was received by it.

The cause was tried on an agreed statement of facts supplemented by some additional parol evidence respecting the question of insolvency of the bank, and the manner of handling plaintiff's account, checks and drafts.

The facts agreed upon appear in two separate statements designated as plaintiff's exhibits 1 and 2. These exhibits are as follows:

"It is stipulated and agreed by and between the plaintiff and the defendant that on May 2nd the defendant, Diehlstadt Bank, now in the hands of the state finance commissioner for liquidation, received from the claimant, Cottondale Planting Company, a certain draft attached hereto and marked plaintiff's exhibit A, which draft was forwarded by the Diehlstadt Bank to the National City Bank of St. Louis Missouri, its correspondent, for collection and returns; that the National City Bank of St. Louis, Missouri, in turn forwarded same through ordinary channels to Memphis, Tennessee, where said draft for $ 1000 was accepted and paid by the drawee, Cheatham Cotton Company, of Memphis, Tennessee, on May 6, 1925, to the Memphis branch of the Federal Reserve Bank of St. Louis; that the proceeds of said draft were forwarded by the Memphis branch of the Federal Reserve Bank of St. Louis, in St. Louis, Missouri, on May 7, 1925, which then credited the account of the Diehlstadt Bank, this defendant, in that sum on said May 7, 1925.

"It is further stipulated and agreed that the defendant Diehlstadt Bank, closed its doors on May 6, 1925, at 10 o'clock a. m. and has not since said date reopened its doors for business, but has since that time, been in the hands of the state finance commissioner of the State of Missouri, for the purpose of liquidating its affairs; that on the 6th day of May, 1925, the date the said Diehlstadt Bank closed its doors, the said Diehlstadt...