Griffith v. The Burlington State Bank

• Decision Date: 04 May 1929
• Docket Number: 28,786
• Citation: 277 P. 42,128 Kan. 279
• Parties: NELLIE GRIFFITH, Appellee, v. THE BURLINGTON STATE BANK et al., Appellants
• Court: Kansas Supreme Court

277 P. 42

128 Kan. 279

NELLIE GRIFFITH, Appellee, v. THE BURLINGTON STATE BANK et al., Appellants

No. 28,786

Supreme Court of Kansas

May 4, 1929

Decided January, 1929.

Appeal from Coffey district court; ISAAC T. RICHARDSON, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

BANKS AND BANKING--Preferred Claims--Failure of Bank Before Return of Proceeds on Checks. The proceedings considered in an action in which it appeared a check on a bank was sent directly to the bank for collection and return, and held, a preferred claim for the amount of the check was established against the receiver of the bank which failed before return of proceeds of collection was effectuated.

L. H Hannen, of Burlington, and Elmer W. Columbia, of Oswego, for the appellants.

Ray S. Pierson, of Burlington, Roscoe W. Graves, of Emporia, and H. G. Leedy, of Kansas City, Mo., for the appellee.

Burch J. Harvey and Hutchison, JJ., dissenting.

OPINION

BURCH, J.:

The action was one to establish a preferred claim against the receiver of the Burlington State Bank. Plaintiff recovered, and the receiver appeals. The case is companion to that of Peoples State Bank v. Burlington State Bank (ante, p. 274, 277 P. 39).

The administrator of an estate kept his funds in the Burlington State Bank, of Burlington, Kan. Desiring to make partial distribution of the estate, the administrator mailed to Nellie Griffith, one of the heirs residing at Riverside, Cal., his check on the bank for $ 2,000. Nellie Griffith delivered the check to the First National Bank of Riverside, which forwarded it directly to Burlington State. A form letter was used in transmitting the check, which read:

"We inclose the following items for collection and

Return

Credit."

Riverside National had no account with Burlington State, was not opening an account with Burlington State, was not given credit by Burlington State, and the letter was properly understood and treated as if it read "for collection and returns."

Burlington State charged the check to the administrator's account, and sent Riverside National a draft on Burlington State's Kansas City, Mo., correspondent, the Commercial National Bank. The draft was dated April 6, 1927. At close of business that day Burlington State suspended. When the draft was presented to Commercial National, payment was refused. When the administrator's check was drawn and paid, his account was more than sufficient to take care of the check. When the draft on Commercial National was drawn and forwarded to Riverside National, Burlington State's account with Commercial National was more than sufficient to take care of the draft. When Burlington State closed, it had cash on hand in the sum of $ 3,918.42. The financial relations between Burlington State and Commercial National are stated more at length in the opinion in the Peoples State Bank case.

When a check on a bank is sent to the bank for collection it acts as agent of the sender to make the collection, and when the collection is made it gets the proceeds in the same capacity as if the collection were made from another bank across the street. In this instance the bank made the collection by charging the check to the account of the administrator. The check was authority from the administrator to make the charge, and his funds subject to check were reduced by the amount of the check. Having made the collection, the bank's relation to the fund was the same as if the collection had been made from a bank across the street, and the principles apply which governed the decision in the Peoples State Bank case. The precise question was determined in the case of Kesl v. Bank, 109 Kan. 776, 204 P. 994 (1921).

In the opinion in the case of Guymon-Petro Mercantile Co. v. Farmers State Bank, 120 Kan. 233, 243 P. 321, the Kesl case was distinguished and there was no analogy between the two cases. In the Guymon-Petro case, the sole obligation of the failed bank was to pay its depositors' checks. It was not agent of anybody to do anything. The relation to the drawer of each check was that between debtor and creditor, and the fact that its checks came to it for payment from a chain of collecting agencies did not change that relation. All that happened was, the obligation of the debtor to its creditors was not discharged. Delivery of a worthless draft by way of discharge did not convert funds of the bank on which unpaid checks and unpaid draft were drawn into trust funds. In the Kesl case, and in the case under decision, the banks on which the checks were drawn obtained possession of the checks under conditions which created a fiduciary relation.

In the opinion in the Guymon-Petro case the technical, even artificial, character of the principal-agent-trust-fund doctrine was adverted to. The observation contains a possible implication which if carried to its logical conclusion would upset the doctrine. To illustrate: In the Peoples State Bank case Commerce Trust sent a draft on Burlington National to Burlington State for collection and remittance. The possible implication referred to is that whatever Burlington State might do in the collection transaction would be done by Commerce Trust, and consequently Commerce Trust could not hold Burlington State for violation of its instruction to collect--which meant to collect money or its full equivalent, and its instruction to remit--which meant to remit money or its full equivalent. That would permit an agent for collection and remittance to convert, by its own act, its fiduciary relation to that of debtor and creditor--something which an agent to collect and remit has no power, express, apparent, or implied, to do.

The principal-and-agent doctrine was accepted by all the members of the court in the Kesl case and in the companion case of Tire & Rubber Co. v. Bank, 109 Kan. 772, 204 P 992. The dissent in each case was on the ground no change in the assets of the failed bank occurred. The subject of principal and agent was not discussed in the opinion in the Tire & Rubber Company case, because there was no dispute about it. The matter of augmentation of assets, concerning which the members of the court did not agree, was not material unless the failed bank...