Leach v. Battle Creek Sav. Bank

• Decision Date: 14 December 1926
• Docket Number: No. 37401.,37401.
• Citation: Leach v. Battle Creek Sav. Bank, 202 Iowa 875, 211 N.W. 527 (Iowa 1926)
• Parties: LEACH, STATE SUPERINTENDENT OF BANKING, v. BATTLE CREEK SAV. BANK (ALEXANDER, INTERVENER).
• Court: Iowa Supreme Court

202 Iowa 875

211 N.W. 527

LEACH, STATE SUPERINTENDENT OF BANKING,

v.BATTLE CREEK SAV. BANK (ALEXANDER, INTERVENER).

No. 37401.

Supreme Court of Iowa.

Dec. 14, 1926.

Appeal from District Court, Ida County; R. L. McCord, Judge.

The claim of H. L. Alexander, intervener, was allowed by the court as a preferred claim against the receiver of the Battle Creek Savings Bank, and he appeals.Reversed and remanded.

See, also, 211 N. W. 520.Ben J. Gibson, Atty. Gen., and Campbell & Campbell, of Battle Creek, for appellant.

Charles S. Macomber, of Ida Grove, for appellee.

STEVENS, J.

The controversy in this case grows out of the insolvency of the Battle Creek Savings Bank of Battle Creek, Iowa, and involves the right of H. L. Alexander, intervener and appellee, to have his claim, filed with the receiver, established as a preferred claim.The material facts, which are conceded, are as follows: On February 21, 1924, the appellee, who resides at Concord, N. H., forwarded to the cashier of the Battle Creek Savings Bank a note for the sum of $2,500, signed by Louis Derr and wife, for collection.The letter of transmittal follows:

“J. W. Wellner, Cashier, Battle Creek Savings Bank, Battle Creek, Iowa--Dear Sir: I am in receipt of your favor of January 20 inclosing check for $75 in payment of Louis Derr interest due Feb. 1.I am inclosing to you herewith the following papers in this loan, which papers I would have forwarded you before but I have only just received the satisfaction signed by my sister.

NoteNo. 1660 for $2,500 due February 1, 1924; Assignment of mortgage from A. C. Johnston to Leodore E. Alexander; assignment from Leodore E. Alexander to Mary E. Alexander; mortgage from Louis Derr and Lena Derr to A. C. Johnston; satisfaction signed by my sister, Mary E. Alexander.

Of the proceeds, $2,500, you may deposit $1,000 in the name of my sister, Mary E. Alexander, forwarding me passbook for this amount, in her name, together with draft to her order for the balance.”

The note, which apparently did not include interest, was paid in full to the bank on the 16th day of February.Pursuant to appellee's directions, the bank opened an account with Mary E. Alexander for $1,000, issued a passbook to her, and also drew its draft on the First National Bank of Chicago, payable to appellee, for $1,500, and promptly forwarded the passbook and draft to appellee, who on February 18th acknowledged receipt thereof as follows:

“Mr. J. W. Wellner, Cashier, Battle Creek Savings Bank, Battle Creek, Iowa--Dear Sir: I wish to thank you for your letter of February 15, inclosing Chicago exchange for $1,500 together with book showing $1,000 to the credit of Mary E. Alexander, in payment of Louis Derr's loan which matured February 1.”

Before the draft could be presented at the bank in Chicago in due course, and on February 20th, the Battle Creek Savings Bank became insolvent and closed its doors.

[1] That the acceptance of the note for collection by the bank created the relation of principal and agent between it and appellee is not only obvious, but well settled by the decisions of this and other courts.Page County v. Rose, 130 Iowa, 296, 106 N. W. 744, 5 L. R. A. (N. S.) 886, 8 Ann. Cas. 114;Messenger v. Carroll Trust & Savings Bank, 193 Iowa, 608, 187 N. W. 545;Brown v. Sheldon State Bank, 139 Iowa, 83, 117 N. W. 289.The proceeds of the note, when received by the bank from the debtor, became a trust fund in its possession.

[2] The only question, therefore, to be determined is, Was the relation of principal and agent terminated by the issuance and transmittal of the draft for $1,500 to appellee and the credit upon the books of the bank in favor of Mary E. Alexander, and that of creditor and debtor substituted?If the relation of principal and agent continued until appellee was actually paid, then the preferenceallowed in favor of appellee's claim by the court below must be sustained, if it passed to the receiver in augmentation of the bank's funds; otherwise, the order must be set aside and reversed.This is the decisive test to be applied in such cases in determining whether a preference should or should not be allowed.Commercial National Bank v. Armstrong, 148 U. S. 50, 13 S. Ct. 533, 37 L. Ed. 363;Lippitt v. Thames Loan & Trust Co., 88 Conn. 185, 90 A. 369.There can be no question as to the $1,000 credited to the account of Mary E. Alexander, and her claim is not here involved.It will be observed that the remittance was in the exact form requested by appellee.The request that the draft of the bank for $1,500 be forwarded to him was based, of course, upon the anticipated payment by the debtor to the bank of the note.Appellee must also have known that, upon the issuance of the draft, the proceeds of the collection would be at once mingled with the general assets of the bank and lose its identity.The loss of identity is not, however, in any respect, vital to the right to a preference.It is, however, significant, in the determination of the subsequent relation between the parties.

[3] One who purchases a draft of a bank, paying therefor in currency, purchases the credit of the bank, and no trust relation arises.The direction to the bank to remit the balance of the proceeds of the collection above $1,000 by its own draft was the equivalent of the deposit of currency for the purchase of the draft at the bank's counter for that amount.The question is largely one of intention.The bank used the proceeds of the collection in payment of the draft, which it drew upon its own credit at the Chicago bank.That appellee intended to exchange the funds held by its agent for the draft is hardly open to controversy.Both parties intended the draft to operate as a...