In re Liquidation of Canal Bank & Trust Co.

• Decision Date: 04 February 1935
• Docket Number: 32606
• Citation: 160 So. 609,181 La. 856
• Parties: In re LIQUIDATION OF CANAL BANK & TRUST CO. Intervention of CLARK & CO
• Court: Louisiana Supreme Court

160 So. 609

181 La. 856

In re LIQUIDATION OF CANAL BANK & TRUST CO. Intervention of CLARK & CO

No. 32606

Supreme Court of Louisiana

February 4, 1935

Rehearing Denied April 1, 1935

Appeal from Civil District Court, Parish of Orleans; Hugh C. Cage Judge.

In the matter of the liquidation of the Canal Bank & Trust Company wherein John F. Clark & Co. filed a petition of intervention. From a judgment for intervener, liquidator of the Canal Bank & Trust Company appeals.

Judgment annulled and reversed, and new judgment directed.

John E. Jackson and Baldwin J. Allen, both of New Orleans, for intervener John F. Clark & Co.

Dufour, St. Paul, Levy & Miceli and Rene J. Waguespack, all of New Orleans, for liquidators of Canal Bank & Trust Co.

Henry & Cooper and McLoughlin & West, all of New Orleans, amici curiae.

OPINION

HIGGINS, Justice.

On June 30, 1933, John F. Clark & Co. filed a petition of intervention in the liquidation proceedings of the Canal Bank & Trust Company, which had been taken charge of by the state banking commissioner under the provisions of Act No. 300 of 1910, claiming that it was entitled to be paid the sum of $ 3,499.98, representing the proceeds of three drafts drawn on out of town banks, by preference and priority over all other creditors of the bank, and a lien and privilege on all of the assets of the bank, by virtue of the provisions of Act No. 63 of the Legislature of 1926.

The defense was that the drafts were deposited on an unrestricted indorsement, and the amount thereof immediately credited to the intervener's checking account, thereby creating the relation of debtor and creditor between the parties, the bank becoming the owner of the drafts and not the agent of the intervener for the purpose of collecting and remitting the proceeds of the draft, and that therefore the provisions of the act in question have no application.

There was judgment in favor of the intervener as prayed for, and the liquidator of the bank has appealed.

John F. Clark & Co. had a checking account with the Canal Bank & Trust Company. On March 1, 1933, it deposited with the bank three drafts drawn to its order, one drawn by the National Bank of Commerce of Houston, Tex., on the New York Trust Company of New York, the second drawn by the First National Bank of Amarillo, Tex., on the Central Hanover Bank & Trust Company of New York, and the third drawn by the First National Bank of Dothan, Ala., on the Central Hanover Bank & Trust Company of New York, aggregating $ 3,499.98, which amount was at once credited to the checking account of the depositor.

The deposit slip used in the transaction reads on its face as follows:

"New Orleans, La., Mar., 1, 1933.

"No. 541.

"Agreement.

"Checks, drafts and other items will be handled by this Bank solely on the terms and conditions printed on the reverse hereof. In making deposits, the depositor acknowledges to have taken cognizance of all of such terms and conditions and consents and agrees to be bound thereby.

"Exchange Deposited by John F. Clark & Co. with Canal Bank & Trust Company."

Then follows a list of the amounts of the respective drafts.

On the reverse side of the deposit slip appears the following:

"3. Checks, drafts and other items drawn on other cities will be handled subject to the following terms and conditions:

"(a) This bank will act only as the agent of the customer from which it receives such items and will assume no responsibility or liability except for its own negligence, nor will it assume any responsibility or liability for any items lost in the mails.

"(b) This bank may present suchitems for payment or send such items for collection direct to the bank on which they are drawn or at which they are payable, or in its discretion may forward them to a collecting agent with authority to present them for payment or send them for collection direct to the bank on which they are drawn or at which they are payable.

"(c) Each collecting agent is the agent of the customer and no collecting agent shall be liable for any loss growing out of neglect, default or failure of another collecting agent.

"(d) This bank and/or collecting agents may in their discretion and at their option accept either cash or bank drafts in payment of or in remittance for such items and they shall not be held liable for any loss resulting from the acceptance of bank drafts in lieu of cash or for the failure of the drawee bank or any collecting agent to remit for such items or for the non-payment of any bank draft accepted in payment or as a remittance from the drawee bank or any collecting agent.

"(e) The amount of any check, draft or other item, for which payment is actually and finally collected funds is not received, may be charged back to the customer, regardless of whether or not the check, draft or other item can be returned.

"4. All notes or drafts deposited for collection will be protested for non-payment unless otherwise instructed."

On the same day the drafts were forwarded by the bank to its correspondent, the Chase National Bank of New York, for collection, and on March 3, 1933, were collected and the proceeds thereof credited to the regular account of the Canal Bank & Trust Company with the Chase National Bank of New York. This was the customary banking method of handling such items; the remittances not being by draft or cash. These funds were not segregated, but remained commingled with the bank's general funds.

In the meantime, on March 1, 1933, John F. Clark & Co. withdrew from its checking account $ 36,956.40, leaving a balance to its credit, not including the deposit in question, of $ 41,981.

On March 2, 1933, the Canal Bank & Trust Company and all other banks in the state of Louisiana were closed by the proper officials under the provisions of Act No. 179 of 1902. All the banks in the city of New Orleans were closed by a resolution of the New Orleans Clearing House Association, of which the banks were members, with the approval of the Governor of the state of Louisiana, and their demand obligations were suspended. On March 3d, by virtue of a resolution of the New Orleans Clearing House Association, approved by the Lieutenant Governor of the State, the banks were permitted to reopen, subject to the following conditions and limitations:

"1. At and after that time all depositors whether checking, savings or on certificates of deposit, will be permitted to withdraw not to exceed five per cent (5%) of the amount of their respective deposits, not including therein items on which returns have not as yet been received.

"2. In case it is not withdrawn, this five per cent will in the case of each depositor be set up in a new non-interest bearing account which with any additional funds deposited therein will be subject to check without any restrictions. Checks drawn on or prior to March 1, 1933, will not be honored against such new account, except on specific instructions of the drawer.

"3. The other usual functions and duties of the banks will be performed in the customary manner, as nearly as possible.

"4. The safe deposit vaults will be open for the use of the box holders as usual.

"5. As soon as thenation-wide conditions which have made these restrictions necessary have abated, a further announcement will be made by this Association."

On March 4, 1933, by resolution of the New Orleans Clearing House Association, its members remained closed during that day. From March 6, through March 18, 1933, the banks remained entirely closed, by virtue of a proclamation of the President of the United States and the United States Treasury regulations. On March 20, 1933, pursuant to Treasury regulations, the Canal Bank was permitted to reopen, but restricted to the payment of demand obligations in an amount not to exceed 5 per cent. to each depositor. It operated in this manner until May 20, 1933, when it was placed in liquidation by the state banking commissioner, under Act No. 300 of 1910, having failed to obtain permission from the United States Treasury Department to open on an unrestricted basis.

The solution of the issues presented depends upon whether or not the transaction between the intervener and the bank resulted in a debtor and creditor relationship, or that of principal and agent. If the former, the decision of the lower court is erroneous, and, if the latter, the judgment is correct.

The authorities are far from uniform on the subject. The question has been so controversial that there has been a division of authority, and in numerous instances the decisions have been by divided courts.

In section 152, vol. 3, R. C. L., verbo "Banks," pp. 524 and 525, we find the following pertinent language:

"When a check or other commercial paper is deposited in a bank, indorsed for collection, or where there is a definite understanding that such is the purpose of the parties at the time of deposit, there is no question that the title to the paper remains in the depositor. So, checks deposited as checks do not give rise to the relation of debtor and creditor, and the title to them remains in the depositor, the bank merely acting as an agent of the depositor for the purpose of collection. If, on the other hand, there is a definite understanding at the time of the deposit that such paper is deposited as cash, it is clear that the title passes to the bank. But, where a check indorsed in blank is deposited without any definite understanding as to the way it is to be treated, but is credited by the bank to the depositor as cash, and is so entered upon the depositor's pass book, the question frequently arises whether the title to the check passes immediately to the bank, or remains in the depositor. Prima facie, according to the weight of authority,...