Leach v. Citizens' State Bank of Arthur
| Decision Date | 14 December 1926 |
| Docket Number | No. 36725.,36725. |
| Citation | 203 Iowa 782,211 N.W. 522 |
| Parties | LEACH, STATE SUPERINTENDENT OF BANKING (ANDERSON, INTERVENER), v. CITIZENS' STATE BANK OF ARTHUR (FEDERAL RESERVE BANK OF CHICAGO, ILL., INTERVENER). |
| Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Appeal from District Court, Ida County; E. G. Albert, Judge.
The intervener, Federal Reserve Bank, claimed a preference in the distribution of assets in the hands of the State Superintendent of Banking as receiver of an insolvent state bank on the theory that the bank held funds as trustee. From a decree establishing such preference, the State Superintendent of Banking and Anderson, intervener, appeal. Reversed.
See, also, 211 N. W. 526.Ben J. Gibson, Atty. Gen., Herbert A. Huff and S. S. Faville, Asst. Attys. Gen., for appellants.
J. R. Murphy, of Ida Grove, for intervener, Anderson.
Chas. L. Powell, of Chicago, Ill., and Snell Bros., of Ida Grove, for intervener Federal Reserve Bank.
The facts are not in dispute. The Federal Reserve Bank of Chicago sent by mail direct to the Citizens' State Bank of Arthur checks drawn by various parties on the latter bank. The checks were sent in two lots, and with each was a communication called a cash letter, which read:
“We inclose herewith for collection and remittance at par items listed below.”
The Citizens' State Bank charged the various checks to the accounts of the several drawers, and issued its two drafts upon the Continental & Commercial National Bank of Chicago, payable to the order of the Federal Reserve Bank, one for the amount of the checks inclosed with each cash letter. These drafts were received by the Federal Reserve Bank, and, through the clearing house, presented to the drawee. They were not paid, and were returned marked: “Not sufficient funds.” On the next business day the drafts were by messenger again presented. Payment was again refused, and the drafts marked: “Drawing bank reported closed.” The Citizens' State Bank closed its doors on the morning of the day the drafts were for the second time presented to the drawee for payment, and before such presentation. The appellant, the state superintendent of banking, was subsequently appointed receiver, and the bank is insolvent and in process of liquidation.
The Citizens' State Bank was not a member of, or stockholder in, the Federal Reserve Bank, and had no deposit account in that bank, nor did the appellee have any deposit in the Citizens' State Bank. There was another bank in the town of Arthur. It had, at one time, been the practice of the Federal Reserve Bank to send checks on the Citizens' State Bank to such other bank for collection, but, at the request of the Citizens' State Bank, for some time immediately prior to these transactions such checks had been sent direct to the latter. This arrangement was made by correspondence, and did not include any agreement as to the manner of remitting the proceeds of collections.
Upon this state of facts, and a further showing from which it is claimed it appears the amount of the checks went to augment the assets in the Citizens' State Bank, and was traced into the possession of the receiver, the Federal Reserve Bank asked that its claim for the amount of such checks be established as a preferred claim against the assets in the hands of the receiver, on the theory that a trust was created.
The determination of the question of the existence of a trust depends primarily upon whether the relation of the Federal Reserve Bank to the Citizens' State Bank was that of principal and agent with respect to the fund. If the relation was that of principal and agent, and the fund augmented the assets in the Citizens' State Bank, and has been traced into the hands of the receiver, it is not open to question that, under our prior decisions, a trust was established, and the preference was properly allowed. Nurse v. Satterlee, 81 Iowa, 491, 46 N. W. 1102;Brown v. Sheldon State Bank, 139 Iowa, 83, 117 N. W. 289;Messenger v. Carroll T. & S. Bank, 193 Iowa, 608, 187 N. W. 545;Murray v. North Liberty S. Bank, 196 Iowa, 729, 195 N. W. 354.
I. The relation of the Federal Reserve Bank to the Citizens' State Bank, as the holder of checks drawn upon the latter, clearly involved no relation of trust. It was merely the holder of checks drawn by depositors in the latter bank upon funds so on deposit therein, and as to which the Citizens' State Bank was the debtor of the depositor.
If the checks had been personally presented at the counter of the Citizens' State Bank by an agent of the Federal Reserve Bank, and the draft of the latter had been accepted therefor, or if such an agent and the drawee bank had cleared checks held by one against the other by the draft of the one against whom the balance was found, no trust arising from a relation of principal and agent would have been created. In such case, no element of agency between the holder of the checks and the drawee bank is present, and the relation is only that of debtor and creditor. We so held in Danbury State Bank v. Leach (Iowa) 207 N. W. 336, and Leach v. Iowa State Savings Bank (Iowa) 209 N. W. 279.
The question is narrowed to the proposition whether the relation of principal and agent arose when the Federal Reserve Bank sent the checks by mail direct to the drawee bank. At this point appellee stresses the language of the accompanying letter--that they were sent “for collection and remittance.” But that, in our opinion, is far from conclusive. When the holder of a check presents it to the drawee, and receives the amount called for by it, he may, in a sense, be said to collect it, but, more properly speaking, he receives payment of it. Certainly such a transaction involves no question of agency between the parties immediately concerned, but it is one between two principles, one of whom is entitled to receive, and the other bound by its obligation to its depositor to pay, the amount called for by the check. Each is acting for himself, not one for the other. Such was the holding in Danbury State Bank v. Leach, supra.
The checks were, obviously, not sent for collection in the sense that the drawee bank should collect them from the drawers by presenting them to, and receiving payment from, the drawers. They were sent to the bank on which they were drawn for payment by that bank. The drawee bank was under obligation to its depositors, the drawers of the checks, to pay out their funds upon their orders. The checks were such orders, and the Federal Reserve Bank, as the holder of the orders was entitled to such payment on presentation, if the drawer's funds on deposit were sufficient for that purpose.
We are unable to see that the sending of the checks to the drawee bank by mail gave rise to any other or different relation than would their presentation over the counter. The drawee was under and assumed no obligation,except such as it sustained to the drawers of the checks to pay them, if their deposits were sufficient. The drawee, to the extent its draft was payment, paid the checks in pursuance of its obligation to its depositors to do so. It did not act, or assume to act, for, or as the representative of, the holder, but in discharge of its own obligation. The checks, it is true, were intrusted to the bank, but only for payment by it, not for the bank to do something with them for the holder, as to collect them from the drawers or some third person, but to do what it was itself bound to do in respect to them. The manner of payment, by remittance to the holder, was at the direction of the holder. But, considering the remittance as a mere manner of payment, in so doing the drawee was still simply fulfilling its own obligation in the manner directed by the holder.
It is an elementary principle of the law of agency that an agent cannot, except with the full knowledge and consent of his principal, act for the principal in a transaction where he has, either in his own right or for a third party, an adverse interest. Where one acts in a transaction with another in performance of an obligation resting upon him, the knowledge and consent of the other that he is so acting would seem to have the effect rather to destroy all idea of agency than to bring the transactions within the exception. In such case the one demands what he has a right to demand of the other, and the latter does what he is bound to do.
It is generally held, although there is an authority to the contrary, that as between the owner of a check and a bank to which it is given for collection, the drawee bank, particularly where there is another bank in the same city, cannot be considered a suitable agent, in contemplation of law, to enforce, on behalf of the owner, the demand against itself, and that the bank so sending the check to the drawee bank is guilty of negligence. Western Wheeled Scraper Co. v. Sadilek, 50 Neb. 105, 69 N. W. 765, 61 Am. St. Rep. 550;Pickett v. Investment Co., 22 N. D. 343, 133 N. W. 1026;German National Bank v. Burns, 12 Colo. 539, 21 P. 714, 13 Am. St. Rep. 247;Anderson v. Rodgers, 53 Kan. 542, 36 P. 1067, 27 L. R. A. 248;Winchester Milling Co. v. Bank, 120 Tenn. 225, 111 S....
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