Gillen v. Wakefield State Bank

• Decision Date: 28 March 1929
• Docket Number: No. 115.,115.
• Parties: GILLEN v. WAKEFIELD STATE BANK.
• Court: Michigan Supreme Court

246 Mich. 158

224 N.W. 761

GILLEN

v.WAKEFIELD STATE BANK.

No. 115.

Supreme Court of Michigan.

March 28, 1929.

Appeal from Circuit Court, Lenawee County, in Chancery; Guy M. Chester, Judge.

Action by John Gillen, as receiver for Philip R. Colegrove, against the Wakefield State Bank. From the decree, defendant appeals. Decree modified in accordance with opinion.

Argued before the Entire Bench. H. Thane Bauman, of Adrian (Miller, Baldwin & Boos, of Detroit, of counsel), for appellant.

Leland F. Bean, of Adrian, for cross-appellant.

POTTER, J.

William R. Poucher, as receiver of Phillip R. Colegrove, filed the bill of complaint herein for discovery, and to declare a fund, arising from the sale of live stock by Colegrove, deposited in the defendant bank and set off by the bank against Colegrove's prior indebtedness thereto, a trust fund for the benefit of Colegrove's creditors, and for other relief. Colegrove was engaged in the business of live stock dealer in Morenci and vicinity, shipping from various points. He did his banking business with defendant for several years. He was a farmer, shipping his own stock, the stock of other farmers co-operatively, and buying and selling live stock on his own credit. Generally he shipped weekly. January 1, 1924, he owed the defendant bank notes, one for $1,500, indorsed by his father, due in six months; another for $1,000, not indorsed, due in six months; and a total of $1,660 on notes given in December, 1923, payable in five days, to cover overdrafts for checks given by him to pay for stock shipped in December, 1923. The proceeds of the shipment were deposited January 7, 1924, and credited to Colegrove's account, and the $1,660 in five day notes were paid by charging them to his account. Colegrove's shipments ranged in volume from $10,000 to $32,000 a month. The bank gave him credit to pay for each of his shipments. He gave checks to the farmers in the vicinity in payment for stock, and gave the bank five-day notes to take care of the checks until the return of the proceeds of the shipments, which proceeds were deposited in the bank. The proceeds of each shipment were to be first applied in payment for the stock last shipped. Shipments were sometimes larger than expected, and Colegrove's checks would exceed the amount of his bank balance, including his notes to the bank. He, in such case, covered these overdrafts by new notes.

The state banking commissioner objected to these overdrafts. It was arranged between Colegrove and the bank that the bank should make out notes and sign Colegrove's name to them to cover these overdrafts. The state commissioner of banking objected to these notes because they did not bear Colegrove's genuine signature. It was then agreed between Colegrove and the bank that he was to sign packages of printed blank notes, and the bank could fill out the notes in the proper amount to cover his overdrafts to meet the payments of checks given by Colegrove for stock. In pursuance of this agreement Colegrove signed and delivered two pads or packages of such blank notes and gave the bank authority to fill in the blank spaces. Under this arrangement Colegrove bought stock, gave checks, shipped and sold the stock, collected the proceeds of sales, and deposited such proceeds in the defendant bank. The bank cashed his checks, and, in case he did not have sufficient money in the bank to cover his checks, filled out blank notes signed by Colegrove and advanced him the necessary credit to cover his checks. It furnished him a copy of its ledger sheets showing his credits from shipments and notes and showing checks and notes paid by him. This ledger sheet did not list Colegrove's unpaid notes. Colegrove paid little attention to these ledger sheets. Both he and the bank apparently were under the impression Colegrove was making money.

In February, 1925, before Colegrove made his last shipment of live stock and before he issued his checks therefor, the cashier of defendant bank told him the bank books showed he owed the bank approximately $8,000. Both the cashier and Colegrove apparently thought there was a mistake somewhere. Colegrove said to the cashier of defendant bank if he owed $8,000 he would not ship the stock he had engaged for that week because he did not have any money to pay for it. The cashier of defendant bank told him to go ahead and make the shipment. It was agreed between the bank and Colegrove that this shipment should be made as all others had been made. Colegrove understood his checks therefor would be paid by the defendant bank, using his five-day notes to meet the checks, and the bank would apply the proceeds of the shipment in payment of the checks given in payment therefor.

In pursuance of this arrangement, Colegrove took in the stock of the drawees of the checks involved herein, for shipment, and issued and delivered his checks therefor. The stock was shipped and sold, the proceeds of the sale collected by Colegrove and deposited in defendant bank. The bank set off the credit arising from the deposit of the proceeds of this last shipment against Colegrove's former indebtedness to the bank and refused to pay his checks given for the live stock in the last shipment. The checks were protested upon presentation. Not until after the proceeds of the sale of the last shipment of stock made by Colegrove were deposited in the defendant bank did he ascertain his checks were being protested or his credit withdrawn by the bank. It was the custom and practice of the bank to pay Colegrove's checks issued in payment for each shipment, to fill out his notes executed in blank with the proper amounts, and to extend him credit to the amount of these notes. When remittance was made on the shipment, it was credited to Colegrove's account, and by agreement between Colegrove and the bank it was authorized to apply the proceeds of each shipment in payment of the notes given by him for that amount. Before and at the tiem of the agreement between Colegrove and the bank relating to the last shipment, it was known to both Colegrove and the bank that Colegrove was insolvent, unless there was a mistake in the account between him and the bank. There was no mistake. When Colegrove refused to make the last shipment unless it was to be paid for, the bank, through its cashier, did not withdraw Colegrove's credit, but advised him to take in and ship the stock. It kept Colegrove's signed notes and received the proceeds of this last shipment of stock made by Colegrove, and then set off the deposits against Colegrove's prior indebtedness to it.

Before this suit was started, several general creditors of Colegrove filed a bill in the circuit court for Lenawee county in chancery alleging they were creditors, representing themselves and other creditors; that Colegrove had been engaged in buying and selling stock and had issued a number of checks on the bank here made defendant, which checks had been refused payment and protested for want of funds; that Colegrove was insolvent and certain causes of action existed against certain parties, whereby assets of Colegrove might be recovered in proper proceedings by a receiver; that such receivership would save a multiplicity of suits and large expense to the creditors of Colegrove, and be for the best interests of all concerned. Colegrove admitted the allegations contained in the bill, and thereupon William R. Poucher was appointed receiver and began this suit. He has since died, and the plaintiff, John Gillen, has been appointed receiver in his stead and the suit which abated revived in his name as such.

Had the drawees or holders of Colegrove's checks obtained judgment against him, the court might have appointed a receiver of his property under section 13382, Comp. Laws 1915, and such receiver might have been authorized to commence suit against the bank (section 13383, Comp. Laws 1915); but a creditor is not entitled to the aid of equity until he has exhausted his remedies at law. Jenks v. Horton, 114 Mich. 48, 72 N. W. 20;Ideal Clothing Co. v. Hazle, 126 Mich. 262, 85 N. W. 735;Tyler v. Peatt, 30 Mich. 63. A creditor is not entitled to the aid of a court of equity to attack conveyances or other dealings for fraud until he has become a judgment creditor. Root v. Potter, 59 Mich. 498, 26 N. W. 682;Trowbridge v. Bullard, 81 Mich. 451, 45 N. W. 1012;Nash v. Burchard, 87 Mich. 85, 49 N. W. 492; Eames v. Manley, 121 Mich. 300, 80 N. W. 15;Hatch v. Daugherty, 145 Mich. 569, 108 N. W. 986;In re Abbott, 187 Mich. 229, 153 N. W. 795;Comstock v. Horton, 235 Mich. 282, 209 N. W. 179. A receiver is the arm of the court. 34 Cyc. 16. His custody is that of the court which appointed him. People v. Brooks, 40 Mich. 333, 29 Am. Rep. 534;Campau v. Detroit Driving Club, 135 Mich. 575, 98 N. W. 267. A receiver may be appointed only in proceedings ancillary to a suit pending. Merchants' & Manufacturers' Nat. Bank of Detroit v. Kent Circuit Judge, 43 Mich. 292, 5 N. W. 627;State v. Ross, 122 Mo. 435, 25 S. W. 947,23 L. R. A. 534;Barber v. International Co. of Mexico, 73 Conn. 587, 48 A. 758;Vila v. Grand Island Electric Light, Ice & Cold Storage Co., 68 Neb. 222, 94 N. W. 136,97 N. W. 613,63 L. R. A. 791, 110 Am. St. Rep. 400,4 Ann. Cas. 59;Mann v. German-American Investment Co., 70 Neb. 454, 97 N. W. 600;Hottenstein v. Conrad, 9 Kan. 435.

As said in Jones v. Schall, 45 Mich. 379, 8 N. W. 68: ‘This appointment of a receiver, even if one could have been appointed at any stage of the case, was absolutely void, as the bill had not been filed and no suit commenced at the time. Merchants' & Manufacturers' Nat. Bank v. Circuit Judge, 43 Mich. 292’ .

If there was a special or trust fund the defendant bank had it. Colegrove did not have it. The appointment of a receiver for Colegrove was not warranted. The theory of this case is that the relation of debtor and creditor did not exist between the drawees or holders of Colegrove's checks and Colegrove, but...