J.T. Enterline & Son v. Andrew

• Decision Date: 23 June 1930
• Docket Number: 40124
• Citation: 231 N.W. 416,211 Iowa 176
• Parties: J. T. ENTERLINE & SON, Appellee, v. L. A. ANDREW, State Superintendent of Banking, et al., Appellants
• Court: Iowa Supreme Court

231 N.W. 416

211 Iowa 176

J. T. ENTERLINE & SON, Appellee, v. L. A. ANDREW, State Superintendent of Banking, et al., Appellants

No. 40124

Supreme Court of Iowa, Des Moines

June 23, 1930

REHEARING DENIED NOVEMBER 18, 1930.

Appeal from Story District Court.--H. E. FRY, Judge.

Suit in equity, by J. T. Enterline & Son against L. A. Andrew superintendent of banking and receiver of the People's Savings Bank of Nevada, and against the Nevada Poultry Company, a partnership between C. T. Irish and C. E. Airy, in which plaintiff prays that defendants be ordered to account to plaintiff for the proceeds of a sight draft, as more particularly set out in the opinion. Plaintiff had decree against the Nevada Poultry Company for $ 1,821.05 and interest. The Nevada Poultry Company had decree for the establishment of depositor's claim against the People's Savings Bank and its receiver for the same amount. The Nevada Poultry Company and the receiver appeal.

Reversed.

Addison & Smedal, for Nevada Poultry Company, appellant.

Welty Soper & Welty, for L. A. Andrew and V. R. Semans, appellants.

Lee, Steinberg & Walsh, for appellee.

MORLING, C. J. EVANS, STEVENS, KINDIG, and WAGNER, JJ., concur.

OPINION

MORLING, C. J.

It will assist in the consideration of the pleadings and evidence if we premise a few well settled legal principles. A check may be received as conditional payment, or it may be accepted as full payment and in extinguishment of the original indebtedness, in which last event the remedy of the creditor is upon the check. Rohrbach v. Hammill, 162 Iowa 131, 143 N.W. 872; 48 Corpus Juris 619. A principal has an election to repudiate or ratify an unauthorized transaction. 2 Corpus Juris 468. Ratification is equivalent to prior authority. 2 Corpus Juris 516. Acceptance and retention of benefits of an unauthorized act constitute ratification. To an understanding of the issues a tedious statement seems to be unavoidable.

On December 31, 1926, plaintiffs shipped to defendant the Nevada Poultry Company, a carload of poultry, of the value of $ 2,328.91, and drew their sight draft upon the Nevada Poultry Company, with bill of lading attached. The sight draft was made payable to the Security Savings Bank. That bank gave plaintiffs credit for the sight draft. The Continental & Commercial National Bank of Chicago was a correspondent bank of the Security Savings Bank. About January 1, 1927, the Nevada Poultry Company received the carload of poultry. "The car came in ahead of the bill of lading." The People's Savings Bank received the sight draft and bill of lading on January 5, 1927, and on that day the Nevada Poultry Company took them up. The Nevada Poultry Company was a customer of the People's Savings Bank. When the People's Savings Bank presented to the Nevada Poultry Company the sight draft and bill of lading, the Nevada Poultry Company gave to the People's Savings Bank the Nevada Poultry Company's check on the People's Savings Bank for the amount of the check. The People's Savings Bank charged the check to the Nevada Poultry Company's account, and on January 5, 1927, drew and remitted its draft on the First National Bank of Chicago for the amount of the sight draft. This bank draft was payable to the order of the Continental & Commercial National Bank, and bears the indorsement of the Continental & Commercial National Bank to the order of the Security Savings Bank, without recourse. On January 5, 1927, the Nevada Poultry Company deposited with the People's Savings Bank $ 9.14 and $ 8,402.-83, and drew upon the account various checks, including that for the sight draft in question, the result of which was that, as found in Andrew v. Peoples Sav. Bank of Nevada, 207 Iowa 948, 222 N.W. 8, there was available for payment to plaintiff on its check $ 507.91. The testimony in this case is:

"On the Poultry Company's claims, check for $ 110.07, payable to J. L. Evans, 1/5/27, was charged in the account that day. I can't pick them all out individually. They started out over-drawn on that day. On that date there was deposited $ 9.14 and $ 8,402.83. The result would be, on the day's business, an overdraft of $ 1,825.67. I say I do not know which check or group of checks created the overdraft. The entire day's business created the overdraft, but I can't tell the way they were treated there, myself. * * * there is a group of checks listed as having been charged to that account on January 5th, 1927. I can't tell what particular time the check was made and honored by the bank, to satisfy this sight draft. There is no way of telling, when a number of checks, 25 or 30, is all posted on the same day. There is no way of telling what checks cause the overdraft, or whether the entire total of the checks caused the overdraft. * * * I do not believe I can state definitely, since there was a number of checks issued, that the one particular check, $ 2,328.96, created the overdraft. * * * Q. Do you mean that all the other check holders represented by these different checks charged against this account on January 5th, 1927, received their money? A. I do not know. I couldn't testify to that, because I do not know whether they did or not."

The People's Savings Bank took the Nevada Poultry Company's check on itself for the amount of the sight draft, $ 2,328.96, and on the same day, January 5, 1927, issued its draft on the First National Bank of Chicago for $ 2,328.96, payable to the Continental & Commercial National Bank. The People's Savings Bank ceased to function January 6, 1927, in consequence of which the Chicago draft drawn by it for $ 2,328.96 was not paid. Defendant L. A. Andrew, as superintendent of banking, immediately took charge of the People's Savings Bank. On February 24, 1927, plaintiff made proof of claim against L. A. Andrew, as receiver of the People's Savings Bank, on the unpaid draft drawn on the First National Bank of Chicago for $ 2,328.96, asserting a preference because the draft operated as an assignment of funds in the First National Bank of Chicago; because it created a trust fund; because the parties having an interest in the draft "were not buying the credit of the drawer bank, but were only intending that said drawer bank should be their agent in making the transfer of the amount named in the draft;" because the payee acted promptly in presenting the draft; because the People's Savings Bank closed before the payee had an opportunity to present the draft for payment; and because of other reasons not necessary to enumerate. The receiver allowed the plaintiff's claim as a general claim. Plaintiff filed exceptions, on the ground, among others, that the draft "operated as a pro tanto assignment of the funds in the hands of the drawee bank, the First National Bank of Chicago," as well as for the other reasons set out in the demand for preference. The district court established the preference, which this court reduced to $ 507.91. Andrew v. Peoples Sav. Bank of Nevada, 207 Iowa 948, 222 N.W. 8. The $ 507.91 was allowed as a preference because it was found that that was the amount in the fund on which the check was drawn, and the amount which passed into the hands of the receiver. This court denied the preference as to the balance of the claim, which was thereby left as a general claim in favor of the plaintiff and against the receiver. In the opinion in 207 Iowa 948 it is said:

"It was stated in oral argument that the Nevada Poultry Company had never in fact paid the bank the check in full, and that it had an overdraft in its account; and some discussion was had as to the liability of the poultry company for such overdraft, either to the bank or to the claimant. We find nothing in the actual record before us on that subject, nor is the Nevada Poultry Company a party in the procedure. Whatever rights the claimant may have in that direction are not prejudiced by this proceeding."

This opinion was filed November 20, 1928. On December 28, 1928 the plaintiffs filed their petition in this case, in which they allege that they are a partnership; that they shipped the carload of poultry about January 1, 1927; that they instructed their (Security Savings) bank at Eagle Grove to send the bill of lading with sight draft to the People's Savings Bank of Nevada, as an item for collection only; that the Security Savings Bank did send to the People's Savings Bank the bill of lading and sight draft; that, about January 5, 1927, the People's Savings Bank received the bill of lading and sight draft, and on the same day, the Nevada Poultry Company obtained from the People's Savings Bank the bill of lading and gave to the People's Savings Bank its check upon itself for $ 2 328.96, and took possession of the car of poultry; "that, at the time the Nevada Poultry Company received the bill of lading from the People's Savings Bank, and at the time it issued and delivered its check for the sum of $ 2,328.96, it had in its account with the People's Savings Bank of Nevada, Iowa, upon which said check was drawn, the sum of $ 507.91, and if said check was in fact and law paid in excess of the amount of its credit in said account, the same was paid by an overdraft;" that the People's Savings Bank ceased business, and defendant Andrew became receiver; that, about the first day of April, 1927, the plaintiff filed with the receiver a claim for $ 2,328.96, "and claimed a preference in payment of the same;" that, in the classification of claims, the receiver classified plaintiff's claim as a general claim, and plaintiff filed objections to the classification; that, on August 26, 1927, the district court sustained the objections of plaintiff and established the claim as a preferred claim for the full amount; that the defendant Andrew appealed to the Supreme Court, and ...