First State Bank of Bristow v. O'bannon

Decision Date10 April 1928
Docket NumberCase Number: 18823
Citation130 Okla. 206,266 P. 472,1928 OK 241
CourtOklahoma Supreme Court

¶0 1. Banks and Banking--Insolvent State Bank--Requisites of Preferred Claims Against Bank Commissioner.

Before a claim can be allowed as a preferred claim against the State Bank Commissioner in charge 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 commissioner.

2. Same--Bank as Agent in Collection of Draft--Proceeds as Trust Fund in Hands of Bank Commissioner.

A state bank accepting for collection, drafts expressly marked for collection and remittance, handles such collection as agent, and the proceeds become a trust fund in the hands of the bank, subject to be traced into the hands of the Bank Commissioner who takes over the bank as insolvent.

3. Trusts--Commingling of Funds--Presumption of Trustee Using Own Money First.

When a trustee commingles his beneficiary's money with his own, and then invades the common store, he will be presumed to have used his own money first; the law presuming that he does right rather than wrong.

4. Banks and Banking--Failed State Bank--Preferred Claim--Proceeds of Draft Received for Collection and Remittance as Trust Fund.

Where a bank accepts drafts for collection under the express conditions of "collection and remittance" and receives in payment of such drafts a check drawn upon itself by drawee of the drafts, who has ample funds in deposit to pay his check, and the bank has ample funds to pay the check, the transaction is the same as though the bank had actually received cash in payment of the draft. The assets of the bank being thus augmented, the amount of such drafts in such sum as so collected is a trust fund and so a preferred claim.

Error from District Court, Creek County; Fred A. Speakman, Judge.

Action by Frank O'Bannon against the First State Bank of Bristow, O. B. Mothersead, acting Bank Commissioner, and W. S. Simmons, liquidating agent. Judgment for plaintiff, and defendants appeal. Affirmed.

Erman S. Price, Pounders & Pounders, and M. B. Cope, for plaintiffs in error.

Robson & Moreland, for defendant in error.


¶1 O'Bannon forwarded to the First State Bank of Bristow two drafts with bill of lading attached, totaling $ 1,027.70, drawn upon Gibbs for collection and remittance. These drafts were received by the bank, and in due course presented to Gibbs for payment. Gibbs paid the same to the collecting bank by checks drawn upon his account in the collecting bank--his account was adequate to pay the same. His account in due course was charged with the amount of the drafts, and a corresponding credit given the bank's cashier's checks outstanding, and the bank issued its cashier's check to O'Bannon & Company of Claremore for the amount of the collection. The bank became insolvent and the payment on the cashier's check was refused. During the entire transaction and after insolvency there was sufficient cash on hand in the bank to pay the amount in controversy.

¶2 The decisive question here involved is whether the relation between O'Bannon and the bank was that of debtor and creditor or that of principal and agent, and consequently whether O'Bannon was a mere general creditor or a preferred claimant. This question is settled in this jurisdiction by Hall v. Sullivan, 123 Okla. 233, 253 P. 45; Kansas Flour Mills Co. v. New State Bank of Woodward, 124 Okla. 185, 256 P. 43; Thomas v. Mothersead, 128 Okla. 157, 261 P. 363; Bank of Commerce v. Ingram, 33 Okla. 46, 124 P. 64; State ex rel. v. Excello Feed Co., decided January 10, 1928, 131 Okla. , 267 P. .

¶3 In affirming the decision of the trial court we are not unmindful of conflict in the decisions of other jurisdictions as well as conflict in the decisions of the federal courts. We think the status is dependent upon the intention of the parties. 3 R. C. L. 632. There must be assent of the party to whom the debt is due in order to change the admitted original relation of agency. An agent should not be permitted by its act alone to change the relation by sending its check and so convert its trust fund into a debt. Holder v. Western Ger. Bank, 6th C. C. A., 136 F. 90.

¶4 The Ninth Circuit Court of Appeals spoke in Spokane & E. Trust Co. v. U.S. Products Co., 290 F. 884, and held:

"The rule as established by the weight of authority is that where a bank transmits negotiable paper for collection and returns, the bank which receives the check and undertakes the collection is the agent of the principal, and becomes a trustee of the proceeds for the owner, and, except where consent is given, the collecting bank cannot avoid such relationship and create that of mere debtor and creditor."

¶5 The case of Bank of Poplar Bluff v. Millspaugh, 313 Mo. 412, 281 S.W. 733, distinguishes the methods and custom of banking in the reciprocal account and remittance methods of doing business, and holds that where such an item is sent for collection and remittance, the relation is that of principal and agent, and the funds so transmitted are impressed with a trust by reason of the intention of the parties Federal Reserve Bank of St. Louis v. Millspaugh (Mo.) 282 S.W. 706; Bank of America v. Waydell, 187 N.Y. 115, 79 N.E. 857; In re Bank of Cuba in N.Y., 191 N.Y.S. 88; National Life Ins. Co. v. Mather, 118 Ill. App. 491.

¶6 The case of First Nat. Bank v. Walker, 289 Pa. 252, 137 A. 257, holds:

"When paper is accepted for collection under express directions to collect and remit, money in the hands of the collecting bank is then a trust fund for the real owner."

¶7 Likewise, in Nebraska, Griffin v. Chase, 54 N.W. 572; in South Dakota, Plano Mfg. Co. v. Auld, 86 N.W. 21; in Minnesota, Eifel v. Veigel, 211 N.W. 332; and Arkansas, Rainwater v. Federal Res. Bank of St. Louis, 172 Ark. 631, 290 S.W. 69; Goodyear Tire & Rubber Co. v. Hanover State Bank, 109 Kan. 772, 204 P. 992; Kesl v. Hanover St. Bank, 109 Kan. 776, 204 P. 994; Hawaiian Pineapple Co., Ltd., v. Browne, 69 Mont. 140, 220 P. 1114; Federal Res. Bank of Richmond v. Peters, 139 Va. 45, 123 S.E. 379; Federal Res. Bank of Richmond v. Bohannan, 141 Va. 285, 127 S.E. 161; Federal Res. Bank v. Quigley (Mo. App.) 284 S.W. 164; Thomson v. Bank of Syracuse (Mo. App.) 278 S.W. 810; Macy v. Roedenbeck, 227 F. 346; American Can Co., v. Williams, 176 F. 816; Atherton v. Green, 179 F. 806; Archibald & Lewis Co. v. Banque I. DeCommerce, 214 N.Y.S. 366; National Park Bank v. Seaboard Bank, 114 N.Y. 28, 20 N.E. 632; Rock County Bank v. Hollister, 21 Minn. 385; Third Nat. Bank v. Clark, 28 Minn. 263; Merchants' Nat. Bank v. Hanson, 33 Minn. 40, 21 N.W. 849, 53 Am. Rep. 5; In re Seven Corners Bank, 58 Minn. 5, 59 N.W. 633; State v. Bank of Commerce, 61 Neb. 181, 85 N.W. 43, 52 L. R. A. 858; Jones v. Kilbreth, 49 Ohio St. 401, 31 N.E. 346; Peoples Bank v. Jefferson County Sav. Bank, 106 Ala. 524, 17 So. 728, 54 Am. St. Rep. 59; Boykin v. Bank, 118 N.C. 566, 24 S.E. 357; Bank v. Bank, 119 N.C. 307, 25 S.E. 971; Tyson & Rawls v. Western Nat. Bank 77 Md. 412, 26 A. 520, 23 L. R. A. 161; Hoffman v. First Nat. Bank, 41 N. J. Laws, 604; McKeon v. Meade County Bank, 37 S.D. 100, 156 N.W. 795; McLeod v. Evans, 66 Wis. 406, 28 N.W. 173, 57 Am. Rep. 287; Lawrence v. Lincoln County Trust Co., 125 Me. 150, 131 A. 863; White v. Miners Nat. Bank, 102 U.S. 658, 26 L. Ed. 250; Sweeny v. Easter, 68 U.S. 166, 17 L. Ed. 681.

¶8 We shall examine the cases quoted from by the appellant, the Bank Commissioner. Gonyer v. Williams (Cal.) 143 P. 736. There the instructions were not to "collect and remit," but only "for collection." There the stipulation was that the custom was to credit the proceeds of drafts sent for collection. There the intention of the parties governed. The later case in California, Luckehe v. First Nat. Bank, 223 P. 547, to the contrary, held and distinguished the former case based upon custom established therein. In the case at bar no custom is established.

¶9 The next case-- Young, State Bank Examiner, v. Teutonia Bk. & Trust Co. (La.) 64 So. 806. There had been a prior course of dealing between the parties.

¶10 In U.S. Nat. Bank v. Glanton, 146 Ga. 786, 92 S.E. 625. L. R. A. 1917F, 600, the draft for collection was sent to defendant bank without any specific instructions. There was no instruction to collect and remit as herein.

¶11 In Union Nat. Bank v. Citizens Bank, 153 Ind. 44, 54 N.E. 97, cited, the court said, under the facts, that it was understood that upon collection the appellant was to receive a credit and that appellee might use the money in its own business.

¶12 Commercial Nat. Bank v. Armstrong, 148 U.S. 50, 37 L. Ed. 363, 13 S. Ct. 533. This case was construed in Spokane & Eastern Trust Co. v. U.S. Steel Products Co., 290 F. 884, where it was said:

"There the contract required a settlement between the banks only upon certain days of each month, and under the facts, the court concluded that the collections made were not to be placed on special deposit and held until the day for remitting, but were to be treated as a general deposit, the transmitting bank being regarded as a general depositor."

¶13 In Peters Shoe Co. v. Murray, 31 Tex. Civ. App. 259, 71 S.W. 977, it was said:

"It is the well-settled doctrine in this state, as well as in a large number of the states of the union, that in a case like the present, where a special agency is created and the bank has no authority to hold and credit the proceeds of the draft, but is bound by the agreement to remit them immediately to its correspondent, the relation of trustee and beneficiary is created and the money collected or its equivalent can be recovered from the assignee of the insolvent bank."

But the preference was there denied for failure to identify the trust funds. However, the later case in Texas is to the...

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