Lawton v. Lower Main St. Bank

• Decision Date: 18 July 1933
• Docket Number: 13670.
• Citation: 170 S.E. 469,170 S.C. 334
• Parties: LAWTON v. LOWER MAIN ST. BANK.
• Court: South Carolina Supreme Court

170 S.E. 469

170 S.C. 334

LAWTON v. LOWER MAIN ST. BANK.

No. 13670.

Supreme Court of South Carolina

July 18, 1933

On Rehearing August 28, 1933.

Appeal from Common Pleas Circuit Court of Richland County; W. H Townsend, Judge.

Action by J. M. Lawton against Lower Main Street Bank. Judgment for defendant, and plaintiff appeals.

Reversed and remanded, with instructions.

Alva C De Pass, of Columbia, for appellant.

Chas B. Elliott, of Columbia, for respondent.

STABLER Justice.

This case was heard without a jury by his honor, Judge Townsend, upon an agreed statement of facts, substantially as follows:

On December 24, 1931, the plaintiff indorsed in blank and deposited to his account in the defendant bank a check of one C. A. Harper for $100 and another of one Wiggins for $76. Both were made to his order and drawn on People's State Bank of South Carolina, Estill Branch.

On the afternoon of the same day, the checks were delivered by the defendant to the South Carolina National Bank of Columbia for collection; but as the 25th and 26th were holidays, they were not sent out by the latter bank until Monday, December 28, when it transmitted them, by mail, direct to the drawee bank at Estill. Upon their receipt, the Estill bank charged the account of Harper with $100 and the account of Wiggins with $76, and delivered the checks to their respective drawers. On December 30, it issued its check on People's State Bank of South Carolina, Charleston Branch, for $300, which included the two items in question, to the order of the South Carolina National Bank, which received it on December 31 and immediately transmitted it to its branch bank at Charleston; but the check was never collected because of the closing of the People's State Bank of South Carolina, on December 31.

The South Carolina National Bank notified the defendant bank on January 8, 1932, that it had not received payment of the checks; and the latter states that, as is its custom when notified of uncollected checks, it mailed on the same date to the depositor a copy of the debit slip, but plaintiff claims that he did not receive such copy or any notice of it. From January 8 to January 25 plaintiff deposited with the defendant sums of money aggregating $916.15; and on January 25 the defendant charged his account with the $176 and mailed him a notice to that effect. Subsequently, when he received his canceled checks, he also received with them a debit slip with a notation thereon that these two items had been charged back to him.

After receivers were appointed for People's State Bank of South Carolina, its creditors were duly advised that they would be given until October 15, 1932, in which to file their claims. Among those made by the South Carolina National Bank was one for $381.15, asserted by it to be preferential, and attached to it was the check for $300 issued by the Estill bank. The records of the claimant showed that the only party interested in the $176 of this claim was the defendant herein. Nowhere in the records of the claims does any interest of the plaintiff Lawton appear. The defendant bank, however, at this time asserts no interest whatsoever in this claim.

The plaintiff alleged that the defendant had wrongfully converted the $176 to its own use; the defendant denied the allegations of the complaint. Judge Townsend held that the act of 1930 (36 Stat. at Large, p. 1368), now appearing as sections 6948-6962 of the Code of 1932, controlled the rights of the parties to the transaction, and that, under the agreed facts, no negligence on the part of either the defendant or of the South Carolina National Bank was shown to be a proximate cause of the loss complained of; and gave judgment for the defendant. From the court's decree plaintiff appeals.

The appellant contends that the act of 1930 does not apply under the facts of this case, as it does not change the relation of debtor and creditor, where such relation is created or exists by reason of a contract, express or implied, between the parties.

In Macomber & Co. v. Bank, 166 S.C. 236, 164 S.E. 596, 599, tried on circuit in January, 1930, this court had occasion to refer to the law then governing in this state with reference to checks deposited with a bank for collection. Holding that the New York rule obtained, the court, speaking through Mr. Justice Bonham, said:

"It was for a while an issue in this state whether the Massachusetts rule or the New York rule governed. The New York rule is that, when a bank receives paper for collection and forwards it to another bank, the latter becomes the agent of the forwarding bank and is not the agent of the depositor, or the owner of the check.

"The Massachusetts rule is that when a bank receives paper for collection it merely obligates itself to exercise proper care and diligence in selecting its agents and subagents, and the bank to which it forwards the paper, the collecting bank, is not the agent of the forwarding bank, but is the agent of the depositor or owner of the paper."

One of the main questions, therefore, presented by the present appeal is: To what extent, if at all, does the 1930 act abrogate or change the New York rule prevailing in this state at the time of its passage? The act went into effect on March 28, 1930, and so far as we have been advised there is no decision of this court bearing directly upon the point at issue.

We agree with the respondent that a careful reading of the statute in its entirety leads to the conclusion that its purpose was to abrogate or change the New York rule governing in this state and to supplant it, to the extent provided for in the act, with the Massachusetts rule. Section 2, appearing as section 6949 of the Code of 1932, reads as follows: "Except as otherwise provided by agreement and except as to subsequent holders of a negotiable instrument payable to bearer or endorsed specially or in blank, where an item is deposited or received for collection, the bank of deposit shall be agent of the depositor for its collection and each subsequent collecting bank shall be subagent of the depositor but shall be authorized to follow the instructions of its immediate forwarding bank and any credit given by any such agent or subagent bank therefor shall be revocable until such time as the proceeds are received in actual money or an unconditional credit given on the books of another bank, which such agent has requested or accepted. Where any such bank allows any revocable credit for an item to be withdrawn, such agency relation shall nevertheless continue except the bank shall have all the rights of an owner thereof against prior and subsequent parties to the extent of the amount withdrawn."

It is to be observed that this section provides, as was not the law under the New York rule, that every bank in the chain of collection becomes, not the agent of the deposit bank, but "subagent of the depositor" of the item. It will also be found, upon further examination of this section, and from an examination of other sections of the act, that the rule is abrogated in other particulars. The respondent, however, takes this position: That in its use of the clause "where an item is deposited or received for collection," found in section 2, the Legislature "intended to cover the situation when a bank takes an item and credits it to the account of the depositor, as well as when the item is marked for collection." In other words, the contention is that the act controls whether the item is deposited for credit or is received for collection. We think this view is unsound. It is to be remembered that the Legislature, in its passage of the statute, sought to change a rule of law long prevailing in this state, and if it had intended to go to the extent claimed by the respondent, it would have doubtless said so in no uncertain language. An analysis of the phrase quoted is deemed unnecessary; it undoubtedly means--and was intended to mean--that "where an item is deposited for collection or is received for collection." In other words, it is clear to our mind that it was not the purpose of the act to change (nor does it do so) the well-established rule of law that where an item is indorsed without restriction by a depositor, nothing appearing to indicate that it was received for collection, and it is at once passed to his credit by the bank, and he is permitted to check upon the account, he becomes a creditor of the bank, which, as the owner of the paper, is not the agent of the depositor in collecting it but collects on its own behalf. Expressed differently, the act has no reference to nor does it control in a case where the bank receives the item, not for collection, but places it to the account of the depositor as a cash deposit and permits him to check thereon. In such case the relation of creditor and debtor is created between the depositor and the bank.

Of course, whether the deposit is made for collection merely, or is a deposit for credit, depends on the intention of the parties to the...