Pennington v. Third Nat. Bank Of Columbus

• Decision Date: 13 March 1913
• Citation: 114 Va. 674,77 S.E. 455
• Parties: PENNINGTON. v. THIRD NAT. BANK OF COLUMBUS, GA.
• Court: Virginia Supreme Court

77 S.E. 455

114 Va. 674

PENNINGTON.

v.THIRD NAT. BANK OF COLUMBUS, GA.

Supreme Court of Appeals of Virginia.

March 13, 1913.

1. Banks and Banking (§ 156^*)—Collections—Title to Proceeds.

The collection of a draft by a bank for a customer in the ordinary course of business, the proceeds being placed to the customer's credit, amounts to a general deposit by the customer, and creates the relation of debtor and creditor between them.

[Ed. Note.—For other cases, see Banks and Banking, Cent. Dig. §§ 539-546; Dec. Dig. § 156.^2-*]

2. Banks and Banking (§ 75*)—Deposits-Receipt after Insolvency.

The receipt of a deposit by a bank, with knowledge of its insolvency, is a fraud on the customer, makes the bank a constructive trustee, and entitles the depositor to recover the deposit, if it can be identified, or its equivalent, if mingled with the bank's funds, so that it cannot be identified.

[Ed. Note.—For other cases, see Banks and Banking, Cent. Dig. § 157; Dec. Dig. § 75.*]

3. Banks and Banking (§ 116*)—Deposits-Receipt after Insolvency.

A bank, whose cashier received a deposit after it was insolvent, was charged with the cashier's knowledge of such insolvency, although due to his and the assistant cashier's defalcations, since he was acting for it within the scope of his powers, and his knowledge, however acquired, was its knowledge.

[Ed. Note.—For other cases, see Banks and Banking, Cent. Dig. §§ 2S2-2S7; Dec. Dig. § 116.*]

Appeal from Law and Chancery Court of City of Norfolk.

Suit by the Third National Bank of Columbus, Ga., against the National Bank of Commerce of Norfolk, Va., and the Bank of Tarboro, in which Ed. Pennington, receiver of the last-named bank, intervened. From a decree for plaintiff, the receiver appeals. Affirmed.

The material facts of this case are agreed. On June 6, 1911, the appellee, the Third National Bank of Columbus, Ga. (hereinafter referred to as the Georgia bank), discounted and became the holder for value of a draft for $2, S01.45, drawn by J. B. Hoist & Co., of Columbus, Ga., on Tarboro Cotton Factory, Tarboro, N. C, in favor of A. W. Hale, cashier, with bill of lading attached for 35 bales of cotton, consigned to the order of J. B. Hoist & Co., for Tarboro Cotton Factory, and bill of lading indorsed by J. B. Hoist & Co. The Georgia bank sent the draft, with bill of lading attached, to the Bank of Tarboro, N. C, with instructions: "For collection and return, remit to National Park Bank, New York, for our credit, and advise." On June 30, 1911, the Bank of Tarboro presented the draft, with bill of lading attached, to the Tarboro Cotton Factory for payment, which was made the same day by its check for $2,801.45, drawn in favor of the Bank of Tarboro on the Pamlico Insurance & Banking Company of Tarboro, N. C, and the draft and bill of lading were marked paid and delivered to the drawee. This check was presented for payment the same day by the Bank of Tarboro, and paid by the Pamlico Insurance & Banking Company by its check for $2,801.45, drawn on the National Bank of Commerce of Norfolk, Va. (hereinafter referred to as the Norfolk bank), in favor of L. V. Hart, cashier (of the Bank of Tarboro). On the same day the Bank of Tarboro sent the check, with other items aggregating $3,802.-23, to the Norfolk bank for deposit for its (the Bank of Tarboro's) account; and on June 14, 1911, between 10 a. m. and 11 a. m., the Norfolk bank paid the check by charging its amount against the account of the Pamlico Insurance & Banking Company, which had sufficient funds on deposit to pay the same, and crediting it to the Bank of Tarboro.

The Bank of Tarboro was insolvent when it received the draft from the Georgia bank; but its insolvency was not known to any of its officers, except the cashier and assistant cashier, and was due solely to their defalcations. The Bank of Tarboro suspended payment and closed its doors on June 14, 1911, at 1:15 o'clock p. m.; and shortly thereafter the appellant, Ed. Pennington, was appointed receiver by one of the North Carolina courts to take charge of and administer the assets. At no time since June 14, 1911, was the balance on deposit in the Norfolk bank to the credit of the Bank of Tarboro less than $4,-021.33.

In these circumstances, the Georgia bank, on June 20, 1911, made formal demand on the Norfolk bank for $2,801.45, to which it laid claim as its own money, on the ground that it was the avails of the draft which had been sent by it to the Bank of Tarboro for collection; but the Norfolk bank had in the meantime received notice of the failure of the Bank of Tarboro, and that it had been placed in the hands of a receiver, and refused to turn over the fund to the Georgia bank, but held it as stakeholder. Thereupon the Georgia bank tiled a bill in equity against the Norfolk bank and the Bank of Tarboro, claiming the fund, which it alleged had been traced into the hands of the Norfolk bank. The receiver intervened by petition, and also filed an answer maintaining his title to the money as a general asset of the Bank of Tarboro. From a decree of the law and chancery court of the city of Norfolk granting the prayer of the bill, Pennington, receiver, appealed.

Willcox, Cooke & Willcox, of Norfolk, for appellant.

E. R. F. Wells and Tazewell Taylor, all of Norfolk, for appellee.

WHITTLE, J. (after stating the facts as above). In our view of this case, it lies within much narrower limits than the scope of the argument would indicate.

The general doctrine is settled that the collection of a draft by a bank for a customer in the ordinary course of business, and placed to the customer's credit, amounts to a general deposit by the latter and creates the relation of debtor and creditor between them. In such case, the customer ordepositor has the right to demand of the bank an equivalent amount of money, but not the specific coins or other currency deposited. Miller v. Norton & Smith, Receivers, 77 S. E. 452, decided at the present term; Tiffany on Banks and Banking, § 4, p. 11 et seq. In support of the text, the learned author has collected in the notes many decisions.

The influence of the language of the restrictive indorsement of the draft upon the relation between the Bank of Tarboro and its customer (namely, "For collection, and return, remit to National Park Bank, New York, for our credit and advise") is a question upon which the authorities are not agreed, and one which we need not discuss. The concrete proposition, upon the correct solution of which the decision must rest, involves the relation...