Love v. Federal Land Bank of New Orleans

• Decision Date: 14 April 1930
• Docket Number: 28508
• Citation: 157 Miss. 52,127 So. 720
• Court: Mississippi Supreme Court
• Parties: LOVE, SUPERINTENDENT OF BANKS et al. v. FEDERAL LAND BANK OF NEW ORLEANS et al

127 So. 720

157 Miss. 52

LOVE, SUPERINTENDENT OF BANKS et al. v. FEDERAL LAND BANK OF NEW ORLEANS et al

No. 28508

Supreme Court of Mississippi

April 14, 1930

Division B

BANKS AND BANKING. Collection.

Relationship. Insolvency. Trust. Relation between forwarding bank and collecting bank is that of debtor and creditor; no trust exists in favor of forwarding bank or depositor on assets of collecting bank whose check in settlement was not paid because of insolvency. Where a Federal Land Bank indorses a check given it and deposits it with another bank to its account, and such other bank forwards it to a correspondent bank for collection, and the check is collected by the correspondent bank, the relation between the forwarding bank and the collecting bank is that of debtor and creditor and not principal and agent, and no trust exists in favor of the forwarding bank, or its depositor, upon the assets of the collecting bank, although the collecting bank is insolvent, and its check given the forwarding bank in settlement was not paid because of insolvency.

HON CHAS. S. MITCHELL, Chancellor.

APPEAL from chancery court of Chickasaw county, Second district HON CHAS. S. MITCHELL, Chancellor.

Suit by the Federal Land Bank of New Orleans and another against J S. Love, Superintendent of Banks, and another. Decree for complainants, and defendants appeal. Reversed and dismissed.

Judgment reversed, and bill dismissed.

Robert Burns, Jr., F. W. Bradshaw and Flowers, Brown & Hester, all of Jackson, for appellants.

The Mississippi supreme court has never in its decisions impressed the assets of an insolvent bank with a trust under like conditions as these, but on the contrary has distinctly held that no trust relationship here exists; that the relationship is simply that of debtor and creditor, and the claim as here set out is not one entitled to preference.

Alexander County National Bank v. Conner, 110 Miss. 653, 70 So. 827; Billingsley v. Pollock, 69 Miss. 759, 13 So. 828, 30 Am. St. Rep. 585; 24 A.L.R., p. 1152; 3 R. C. L., p. 632, sec. 261; 3 R. C. L., p. 636, sec. 265.

J. Morgan Stevens and Wells, Jones, Wells & Lipscomb, all of Jackson, for appellees.

The general rule of law is that when one deposits money in a bank the relation of debtor and creditor arises at once, but this applies only when the money is left with the bank for deposit.

3 R. C. L., par. 261, p. 633; 7 C. J., sec. 248; First National Bank of Meridian v. Strauss, 66 Miss. 479; Commercial Bank v. Armstrong, 142 U.S. 50, 37 L.Ed. 363.

The title to the funds collected did not pass to the collecting bank.

3 R. C. L., p. 633; Commercial Bank v. Armstrong, 142 U.S. 50, 37 L.Ed. 363; Ryan v. Paine, 66 Miss. 678; Kinney & Co. v. Paine, 68 Miss. 258; Campbell Paint & Varnish Co. v. Hall, 95 So. 643; Sawyer v. Conner, 114 Miss. 263, 75 So. 131; Federal Reserve Bank of Richmond v. Peters, 139 Va. 45, 123 S.E. 379, 42 A.L.R. 742; Messenger v. Carroll Trust & Savings Bank, 193 Iowa 608, 187 N.W. 545; Goodyear Tire & Rubber Company v. Hanover State Bank, 109 Kan. 772, 204 P. 992, 21 A.L.R. 677; Keel v. Hanover State Bank, 109 Kan. 776, 204 P. 994; Bank of Poplar Bluff v. Millspaugh (Mo.), 281 S.W. 733; 47 A.L.R. 754; Foster v. Rienecker, 4 Wyo. 492, 35 P. 472; Wallace v. Stone, 107 Mich. 193, 65 N.W. 114.

It seems to be the ruling of the Federal courts that where the assets of the bank were increased by making the collection, the preference arises.

Rorebeck v. Benedict Flour & Feed Company, C. C. A., 8th Circuit, 26 F. Second Series, 440.

OPINION

Ethridge, P. J.

The Federal Land Bank of New Orleans, Louisiana, operating under the laws of the United States, and the Hibernia Bank & Trust Company, a general banking corporation domiciled at New Orleans, Louisiana, exhibited their bill in chancery against J. S. Love, superintendent of banks of the state of Mississippi, and George Bean, liquidating agent of the Merchants' & Farmers' Bank of Okolona, Mississippi, alleging that on the 17th day of February, 1928, S. C. Jones, secretary and treasurer of the Okolona Farm Loan Association, executed his check on the Commercial Bank & Trust Company of Okolona, Mississippi, for fifty-two dollars in favor of the Federal Land Bank of New Orleans and forwarded the said check in payment of an installment due by one Will Gates of Chickasaw county, Mississippi, to the Federal Land Bank. The bill alleged that Gates had prior to that time borrowed money from the Federal Land Bank secured by a deed of trust payable on the installment plan. This check was received by the Federal Land Bank, and indorsed over to and deposited with the Hibernia Bank & Trust Company for collection on February 17, 1928. The Hibernia Bank & Trust Company in turn forwarded the check with other checks to the Merchants' & Farmers' Bank of Okolona, who proceeded to make all of the collections and, after deducting exchange charge, sent the Hibernia Bank & Trust Company its check, dated February 20, 1928, for eight hundred fifty-one dollars and eleven cents, drawn on the First National Bank of Memphis, Tennessee. In the interval of time between the forwarding of said check by the Merchants' & Farmers' Bank to the Hibernia Bank & Trust Company and its presentation at Memphis, Tennessee, the said Merchants' & Farmers' Bank failed and closed its doors on account of insolvency, and the First National Bank of Memphis refused to honor the check on that account. The bill also alleged that all of the affairs of the Merchants' and Farmers' Bank were taken in charge by J. S. Love, superintendent of banks, who was thereafter duly and legally appointed a receiver for said bank and is now administrator of the assets of the said bank; that the check forwarded to the Merchants' & Farmers' Bank was charged back by the Hibernia Bank & Trust Company to the Federal Land Bank of New Orleans.

It was further alleged that the Hibernia Bank & Trust Company was acting as a collecting bank, and the Merchants' & Farmers' Bank in turn received the check as collecting agent and presented such check to the Commercial Bank & Trust Company; that the Merchants' & Farmers' Bank received the check for fifty-two dollars for collection at a time when it was insolvent, and its officers and directors knew that the bank was insolvent, but notwithstanding such insolvency and such collection they collected the fifty-two dollars from the Commercial Bank & Trust Company, and the said bank received full value for the said check; that the amount collected increased to that extent the assets of the Merchants' & Farmers' Bank; that at the time the Merchants' & Farmers' Bank failed and went into the hands of a receiver it had a cash balance largely in excess of fifty-two dollars; that neither the Federal Land Bank of New Orleans nor the Hibernia Bank & Trust Company had a deposit account with the Merchants' & Farmers' Bank at the time of said collection, and the check was not forwarded for deposit but for collection. It further alleged that in the course of administration of affairs J. S. Love, superintendent of banks, executed a certificate of guaranty to the Hibernia Bank & Trust Company, but that it refused to receive the certificate; and that afterwards the superintendent of banks issued a certificate of guaranty to the Hibernia Bank & Trust Company for fifty-two dollars, which it refused to accept, claiming that the fifty-two dollars so collected was a trust fund that they were entitled to have it treated as a trust fund superior to the claim of the creditors of the Merchants' & Farmers' Bank, being liquidated as aforesaid. Love and the liquidating agent of the bank refused to treat the fifty-two dollars as a trust fund, and this suit was filed praying for the establishment of the trust on the assets of the bank to the extent of fifty-two dollars as a preferred claim.

J. S Love, superintendent of banks, and George Bean, liquidating agent, answered the bill and admitted that the check was executed on February 17, 1928, by S. C. Jones on the Commercial Bank & Trust Company of Okolona, Mississippi, for fifty-two dollars in favor of the Federal Land Bank of New Orleans; that such check was received by the Federal Land Bank and deposited with the Hibernia Bank & Trust Company on February 17; but denied that it was so deposited for collection only. They admitted that the Hibernia Bank & Trust Company forwarded the said check, together with the other checks, to the Merchants' & Farmers' Bank of Okolona, Mississippi, for collection; that the Merchants' & Farmers' Bank of Okolona received said check and made collection thereon and issued its exchange in settlement thereof in favor of the Hibernia Bank & Trust Company of New Orleans, said exchange being drawn on the First National Bank of Memphis, Tennessee, and being dated February 20, 1928, for an aggregate amount of eight hundred fifty-one dollars and eleven cents; that in the interval between the forwarding of said exchange to the Hibernia Bank & Trust Company and payment thereof by the First National Bank of Memphis, the Merchants' & Farmers' Bank failed and closed its doors, and the First National Bank of Memphis, Tennessee, refused to pay to the Hibernia Bank & Trust Company the proceeds of the said piece of exchange; and that J. S. Love, superintendent of banks, by virtue of the provisions of the banking laws of the state of Mississippi, took charge of the affairs of the Merchants' & Farmers' Bank. They denied that in handling and presenting the check for payment the Hibernia Bank & Trust Company was acting as a collecting bank for the Federal Land Bank, and denied that the Merchants' & Farmers' Bank in turn in receiving said check did so as a collecting agent for the Federal Bank, and denied...