Hecker-Jones-Jewell Milling Co. v. Cosmopolitan Trust Co.

• Decision Date: 01 July 1922
• Citation: 136 N.E. 333,242 Mass. 181
• Parties: HECKER-JONES-JEWELL MILLING CO. v. COSMOPOLITAN TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

242 Mass. 181

136 N.E. 333

HECKER-JONES-JEWELL MILLING CO.

v.COSMOPOLITAN TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

July 1, 1922.

Appeal from Supreme Judicial Court, Suffolk County; Bradley, Judge.

Proceeding by the Hecker-Jones-Jewell Milling Company against the Cosmopolitan Trust Company and others to establish a preferred claim against the Trust Company for the amount of a draft collected by it before its business and property were taken over by the Commissioner of Banks. From a decree dismissing the bill, the petitioner appeals. Affirmed.

1. Banks and banking k315(1)-Owner of draft sent for collection retains control and may sue for negligence.

The owner of a draft sent to a trust company for collection as agent retains control of the draft and may sue the collecting bank for negligence.

2. Banks and banking k315(1)-Bank collecting draft has rights and title necessary to collection

A trust company to which a draft was forwarded for collection has such rights in and title to the draft as is necessary to enable it to make the collection.

3. Banks and banking k315(1)-Payment to collecting trust company held payment of draft as against owner.

When a draft sent to a trust company for collection as paid to it from the drawees' deposit by their direction, this operated as payment of the draft as against the owner.

4. Banks and banking k165-Upon collection of draft relation ordinarily becomes that of debtor and creditor, and proceeds may be mingled with bank's own money.

Ordinarily when a draft is paid to the collecting bank, the owner's ritht of control ends and the relation of agent and principal ceases and bacomes that of debtor to creditor, and the bank is not required to keep the proceeds separate, but may mingle them with its own money.

5. Banks and banking k315(1)-Parties held to have contemplated relationship of debtor and creditor after collection of draft, notwithstanding direction to remit.

The drawer of a draft by making it collectible through a trust company in which the drawee had a deposit authorized collection by charging the drawees' account by their direction, and contemplated the relationship of debtor and creditor after the collection, notwithstanding a direction to remit the proceeds when collected.

6. Banks and banking k315(1)-Facts held not to create trust relation between collecting bank and owner of draft.

Where a depositor in a trust company which held a draft on him for collection deposited a small amount of cash and checks in excess of the amount of the draft, and authorized it to charge his account with the amount of the draft, the cash and checks deposited were not impressed with a trust in favor of the drawer of the draft.

7. Banks and banking k317-If proceeds of collection impressed with trust, there was no right of preferential payment, where proceeds did not come into commissioner's possession.

Even though the proceeds of a draft collected by a trust company were impressed with a trust in its hands in favor of the drawer, the drawer had no right of preferential payment upon insolvency of the trust company, where such proceeds did not come into possession of the Commissioner of Banks, but had been deposited by the trust company in its account in a bank with which it did business.

Choate, Hall & Stewart and Charles O. Pengra, all of Boston, for appellant.

Henry O. Cushman and Daniel L. Smith, both of Boston, for appellees.

DE COURCY, J.

This is a petition to establish a preferred claim against the Cosmopolitan Trust Company, which is being liquidated by the Commissioner of Banks under St. 1910, c. 399 (now G. L. c. 167, §§ 22 to 36). The material facts agreed on are as follows: The petitioner drew its sight draft, dated September 10, 1920, on B. Greenglass & Son, payable through the respondent trust company to the order of Bank of Buffalo in the sum of $3,518, and on September 13, 1920, delivered to said bank the draft with attached bill of lading covering the shipment of a carload of flour. The Buffalo bank immediately forwarded to the Cosmopolitan Trust Company the draft with attached bill of lading, accompanied by its collection form letter, which contained instructions to ‘please remit for our credit to Chemical National Bank, New York,’ and ‘all remittances should be made in New York Exchange.’

The Bank of Buffalo had no account with the respondent trust company. Under date of September 21, 1920, the trust company sent a letter to the Chemical National Bank stating that there was inclosed a check on the Irving National Bank for $3,514.48, covering the proceeds of the draft less $3.52 exchange; no check, however, was inclosed. A duplicate of this memorandum was sent to the Bank of Buffalo. The Cosmopolitan Trust Companyhad an account with the Irving National Bank, but the account at that time was overdrawn.

B. Greenglass & Son, the drawees, had an account with the commercial department of the respondent trust company, the balance of which at the opening of business September 24, 1920, was $1,847.14. On that day they made a deposit of $134 in cash and $3,777.28 in checks. After making this deposit they authorized the trust company, by their check or otherwise, to charge their account with $3,518, being the amount of the draft; this was accordingly done, and the draft and bill of lading were delivered to B. Greenglass & Son.

The Cosmopolitan Trust Company cleared all its checks through the National Union Bank of Boston. There it maintained a ‘special account,’ which by agreement was required to show a balance of at least $300,000, and a general account for clearing purposes. At the opening of business September 24, 1920, the balance to the credit of the trust company in both accounts was $351,643.93. During that day the bank received from the trust company checks to the amount of $350,023.93; cleared checks drawn on the trust company to the amount of $314,973.64; and delivered to it cash to the amount of $135,000. At the close of business on that day the balance of the credit of the trust company was $251,693.71. The checks deposited by B. Greenglass & Son, to the amount of $3,777.28, were included in said $350,023.42. They were received by the National Union Bank of Boston after business hours on September 24, were entered on its books on September 25, and credited to the trust company ‘subject to collection.’ One of the checks, for $1,000, was later returned uncollected, ‘payment stopped,’ and was charged back to the trust company, and by it in turn to B. Greenglass & Son. At the opening of business on September 25, 1920, the respondent Commissioner of Banks took possession of the Cosmopolitan Trust Company, and still retains such possession.

[1][2][3][4] It is not disputed that the Cosmopolitan Trust Company was the agent of the owner of the draft in question for the purpose of collecting it. The plaintiff as principal retained control of it, and could sue the collecting bank for negligence. Lord v. Hingham National Bank, 186 Mass. 161, 71 N. E. 312. On the other hand the trust company, as collecting bank, had such rights in and title to the draft as was necessary to enable it to make the collection. Haskell v. Avery, 181 Mass. 106, 63 N. E. 15,92 Am. St. Rep. 401. When the draft was paid to the respondent trust company from the deposit of the drawees, B. Greenglass & Son, by their direction, that operated as payment of the draft as against the owner. Nineteenth Ward Bank v. First Nat. Bank, 184 Mass. 49, 67 N. E. 670. Ordinarily when a draft has been paid to the collecting bank, the owner's right of control ends, and the relation between the collecting bank and the owner of the draft ceases to be that of agent to principal, and becomes that of debtor to creditor. As was said by this court in Manufacturers' Bank v. Continental Bank, 148 Mass. 553, 558, 20 N. E. 193, 194 (2 L. R. A. 699, 12 Am. St. Rep. 598):

‘Upon the collection of a draft or check, the Fidelity National Bank was not required to keep the proceeds by itself as the plaintiff's property, but might mingle it with its own money and make itself the plaintiff's debtor for the amount received. As soon as the proceeds became a part of the funds of the Fidelity National Bank under this arrangement, the plaintiff's right to control it as specific property was gone, and the plaintiff had instead a right to recover a corresponding sum of money.’

And, in the language of Knowlton, J., in Freeeman's Bank v. National Tube-Works, 151 Mass. 413, 418, 24 N. E. 779 (8 L. R. A. 42, 21 Am. St. Rep. 461):

‘One who collects commercial paper through the agency of banks must be held impliedly to contract that the business may be done according to their well known usages, so far as to permit the money collected to be mingled with funds of the collecting bank.’

See also Planters' Bank v. Union Bank, 16 Wall. 483, 501, 21 L. Ed. 473, and cases collected in Scott's Cases on Trusts, 67, note.

[5] The contention of the petitioner is, that the proceeds of the draft...