In re Int'l Milling Co.

• Decision Date: 26 April 1932
• Citation: 259 N.Y. 77,181 N.E. 54
• Parties: In re INTERNATIONAL MILLING CO. In re BANK OF UNITED STATES. In re BRODERICK, Superintendent of Banks.
• Court: New York Court of Appeals Court of Appeals

259 N.Y. 77

181 N.E. 54

In re INTERNATIONAL MILLING CO. In re BANK OF UNITED STATES. In re BRODERICK, Superintendent of Banks.

Court of Appeals of New York.

April 26, 1932.

Proceedings by the International Milling Company for an order directing the Superintendent of Banks to pay over to claimant certain moneys from funds of the Bank of United States in the Superintendent's possession. From an order of the Appellate Division (233 App. Div. 811, 250 N. Y. S. 846) affirming an order of the Special Term directing the Superintendent to pay over moneys, the Superintendent of Banks appeals.

Affirmed.Appeal from Supreme Court, Appellate Division, First Department.

Carl J. Austrian, Warren C. Fielding, Arthur Ofner, and Joseph F. Hunter, all of New York City, for appellant.

W. Randolph Montgomery, of New York City, for respondent.

HUBBS, J.

Petitioner drew a sight draft on the Liberty Baking Corporation for $1,372.50, payable to the order of the Bank of United States and forwarded it to the payee for collection. Attached to the draft was a paster which read as follows:

‘To the Collecting Bank: This draft is not to be treated as a deposit. The funds obtained through its collection are to be delivered to the International Milling Company and are not to be commingled with other funds of the collecting bank.

‘International Milling Company.’

The draft was received by the payee on December 3, 1930, and paid by the drawee on December 9th. The payee deducted a collection fee and mailed to the petitioner its cashier's check for the balance. On December 11th, the superintendent of banks, acting pursuant to section 57 of the Banking Law (Consol. Laws, c. 2), took possession of the Bank of United States for the purpose of liquidation. The check issued by the bank was subsequently presented for payment, and payment being refused, was duly protested. The petitioner thereupon moved at Special Term for a summary order directing the superintendent of banks to pay over the proceeds of the draft in question, which order was granted and unanimously affirmed by the Appellate Division.

The serious question presented upon this appeal is whether the appellant holds the fund derived from the payment of the draft as bailee or debtor, and, as bearing upon that question, whether petitioner, by receiving and presenting for payment the cashier's check, accepted an unconditional credit and thus became a preferred creditor and ceased to have the rights of a bailor.

Primarily, the bank was petitioner's agent and received the proceeds of the draft as bailee. If the identical fund, segregated and denominated as petitioner's property, had passed into the hands of the receiver, there could be no doubt of the receiver's duty to turn over such fund to petitioner. Under what conditions and by what process does the nature of the relationship change? In considering that question we must consider the intention of the parties, as evidenced by the contract, in this instance clear, unequivocal, and designed to prevent any possible occurrence of a situation liable to the construction contended for by the appellant. The contract is that the proceeds of the collection shall not be commingled with the other funds of the bank, but delivered to petitioner.

The fact that previous drafts had been collected by the bank and remitted for in the same manner has very little weight, as it does not appear that they were collected pursuant to the same form of contract here involved. This contract calls, not for remittance, but for delivery of the proceeds. The means of delivery was left to the bank, and the circumstance that it attempted to deliver by the same method adopted previously did not bind the petitioner or fulfill its contract as delivery of the identical fund, or its equivalent, was not accomplished. The contemplated delivery was never made because of the intervention of the receivership. To say that by crediting the proceeds to petitioner's account on the books of the bank and commingling the proceeds of the collection with the general funds of the bank changed the relation between the parties from that of bailor and bailee to that of creditor and debtor would be to give effect to a positive breach by the bank of its contract and to make binding upon the petitioner acts which it specifically contracted against but over which it had no control.

There is lack of uniformity in the authorities in regard to the relationship which arises between a drawer and a payee bank which has received the proceeds of a collection. Under ordinary circumstances, the view generally adopted is that, after the collection has actually been made by the bank, the relation of debtor and creditor arises. Hacker-Jones-Jewell Milling Co. v. Cosmopolitan Trust Co., 242 Mass. 181, 136 N. E. 333, 24 A. L. R. 1148, and note.

The question has been before the courts of this state in Arnot v. Bingham, 55 Hun, 553, 9 N. Y. S. 68;Frank v. Bingham, 58 Hun, 580, 12 N. Y. S. 767;People v. Merchants' Bank, 92 Hun, 159, 36 N. Y. S. 989. In the first and last cases cited it was held that the owner of the security was entitled to recover of the receiver the proceeds to the extent that money actually came into the hands of the receiver which could be applied to the claim of the drawer or owner of the security, and in the second case cited, which arose out of the same receivership as the first case cited, a contrary rule was stated.

In Matter of Bank of Cuba in New York, 198 App. Div. 733, 191 N. Y. S. 88, it was decided that the money remained the property of the owner of the draft, although merged with the funds of the bank, and in People v. Bank of Dansville, 39 Hun, 187, the same rule was followed.

In this case it is alleged in the affidavit in support of the motion that the appellant took possession of all property and funds in the possession of the Bank of United States, ‘including the proceeds of said collection hereinbefore referred to.’ The answering affidavit on behalf of the appellant does not deny possession of the proceeds, but specifically...