First Nat. Bank of Elkhart v. Armstrong

• Court: U.S. District Court — Southern District of Ohio
• Citation: First Nat. Bank of Elkhart v. Armstrong, 39 F. 231 (S.D. Ohio 1889)
• Decision Date: 12 July 1889
• Parties: FIRST NAT. BANK OF ELKHART v. ARMSTRONG.

39 F. 231

FIRST NAT. BANK OF ELKHART v. ARMSTRONG.

United States Circuit Court, S.D. Ohio, Western Division.

July 12, 1889

J. M Van Fleet, for complainant.

Kittredge & Wilby and W. B. Burnet, for defendant.

SAGE J., (orally.)

This case is before the court on an agreed statement for instructions under the banking law. The case stated is that these two banks had mutual dealings. The First National Bank of Elkhart claims that the Fidelity National, at the time of its failure, owed the Elkhart Bank a large sum of money which is unpaid. The First National Bank of Elkhart sent to the Fidelity National Bank, for credit and advice, certain sight drafts and checks (charging them to the Fidelity Bank on the date they were sent) on certain persons and banks, as appears by the agreed statement of facts. The total amount of those drafts is $1,106.70. Each of them was indorsed as follows: 'Pay Fidelity National Bank of Cincinnati, Ohio or order, for collection for the First National Bank of Elkhart, Ind. WILLIAM H. KNICKERBOCKER, Cashier. ' Each of these drafts, upon its reception by the Fidelity National Bank, was credited to the First National Bank as cash, and that gave the Elkhart Bank the right to draw upon the same as cash, as had been agreed between said banks, as shown by a letter of the counsel of the Elkhart Bank, which is attached to the agreed statement of facts, and made a part thereof. This was the uniform custom and understanding of both banks. It was also their uniform custom and understanding that, when any draft should be returned to the Fidelity Bank unpaid, it should be charged back to the Elkhart Bank, and returned to it. The statement then sets forth the facts, which need not be given in detail, of the failure of the Fidelity National Bank on the 20th day of June, 1887, at the close of business on that day, the appointment of a receiver, and the dates when these drafts were sent out to its correspondents,-- that is to say, the drafts making up the total of $1,106.70. These dates run from June 15th up to about the date of the failure of the Fidelity National Bank, the 20th of June; and all the drafts were paid after the failure of the Fidelity Bank, or at least, all received at Cincinnati after the date of the failure, and after the bank had passed into the hands of the examiner, and they actually came into the hands of the receiver, and are in his possession now. On the 8th of January, 1888, the First National Bank of Elkhart demanded these moneys of the receiver, and he refused to comply with the demand. That is the first branch of the case, and the question presented is whether the Elkhart Bank, as to the proceeds of those drafts, stands in the position of a general creditor, or whether those proceeds, having been received, not by the Fidelity Bank, but by the receiver, should be treated as trust funds which he should, therefore, pay in full to the Elkhart Bank. It appears from the letter of counsel for the Elkhart Bank, which is attached to the statement of facts, and referred to as a portion thereof, that, prior to the negotiations between the Elkhart Bank and the Fidelity Bank, a circular was mailed to the Elkhart Bank by the Fidelity Bank, offering to collect drafts, and, upon their receipt for collection, to credit the amounts as cash to the banks sending the drafts, with the understanding that, if any draft was not collected, the amount thereof should be charged back to the sending bank. Upon that understanding the Elkhart Bank sent drafts, including those above referred to, to the Fidelity Bank for collection. But it is insisted that, inasmuch as these particular drafts were indorsed, not generally, but in terms, 'for collection,' the restrictive indorsement prevented the title to the drafts passing to the Fidelity, and, therefore, that the receipt of the proceeds, upon collection, by the receiver was a receipt on account of the Elkhart Bank, and the money must be paid over. If the premises are correct, the conclusion follows as a matter of course. But let us analyze the transaction, and see where it places these parties. Upon the receipt of the drafts they were credited as cash to the Elkhart Bank, and...