Union Nat. Bank v. Citizens' Bank of Union City

• Decision Date: 13 June 1899
• Citation: 153 Ind. 44,54 N.E. 97
• Parties: UNION NAT. BANK v. CITIZENS' BANK OF UNION CITY et al.
• Court: Indiana Supreme Court

153 Ind. 44

54 N.E. 97

UNION NAT. BANK

v.CITIZENS' BANK OF UNION CITY et al.

Supreme Court of Indiana.

June 13, 1899.

Appeal from circuit court, Randolph county; A. O. Marsh, Judge.

Action by the Union National Bank against the Citizens' Bank of Union City and another, submitted on an agreed statement of facts. From a judgment in favor of defendants, plaintiff appealed. Affirmed.

Bell & Ross, for appellant. J. W. Thompson, for appellees.

JORDAN, C. J.

This cause was submitted to the lower court as an “agreed case” upon a statement of facts, as provided by section 562, Burns' Rev. St. 1894 (section 553, Rev. St. 1881; section 553, Horner's Rev. St. 1897). The following are substantially the material facts in the case: Appellant is a national bank organized under the laws of the United States, and as such institution it is engaged at Kewanee, Ill., in conducting a general banking business. The Citizens' Bank of Union City, appellee herein, prior to being placed in the hands of a receiver, was a state bank organized under the laws of this state as a bank of discount and deposit, and on May 5, 1896, and prior thereto, was engaged in doing a general banking business at Union City, Ind. This bank, on April 20, 1896, and continuously thereafter until its suspension, was insolvent. On May 7, 1896, by reason of its insolvency, it closed its doors, and suspended business, and its doors were not again opened for business after that date. On the morning of May 9, 1896, the state bank examiner, under the laws of the state, took possession thereof, and the bank remained in his possession until the 16th of that month, when it was placed in the hands of appellee Canadey, the receiver appointed as such by the proper court. On May 1, 1896, appellant bank was the bona fide holder of a certain promissory note for over $1,000 in amount, executed by the Knapp Supply Company, a corporation located and doing business at Union City, Ind. This note was payable at the Citizens' Bank. Appellant, on May 1, 1896, indorsed this note for collection, and sent it to the Citizens' Bank, with instructions to collect and remit. The note was received by the latter bank on May 2, 1896, and was duly entered by the bank on its register for collection. The note was presented, on the same day it was received, for payment to the maker thereof, the supply company. This latter company was on that day, and for a long time prior thereto had been, a depositor of the Citizens' Bank, having therein on deposit, at the time the note was presented to it for payment, funds far in excess of the amount of the note. The supply company, at the time the note was presented to it for payment, drew its check upon the Citizens' Bank for $1,157.83, the amount due upon the note, which check was accepted by the Citizens' Bank as a payment in full of the note. The bank thereupon canceled the paper as paid, and delivered it to said company, and charged the amount of the check to said company's deposit account, the same being sufficient to more than pay and satisfy the check. The amount so collected by the Citizens' Bank in payment of appellant's claim was entered on its collection register as a credit on said collection, and on May 4th, the next business day after the payment of the note (the 3d being Sunday), the Citizens' Bank drew its sight draft in favor of appellant for the full amount of the collections (less charges) on the Merchants' National Bank of Cincinnati, Ohio. This latter bank was the regular correspondent of the Citizens' Bank, and when this sight draft was drawn the Citizens' Bank had as a depositor in the Merchants' National Bank an account in its favor in excess of the amount of said draft. On May 5th this draft was mailed by the Citizens' Bank to appellant as a remittance of the proceeds of the note collected in the manner stated, and, without notice or knowledge of the insolvency of the Citizens' Bank upon the part of appellant, the draft was received by it, and on the following day, through its regular correspondent bank in the city of Chicago, Ill., was forwarded to the Merchants' National Bank for payment. On May 9, 1896, the draft was presented to the Merchants' National Bank for payment, but payment thereof was refused, and the draft protested, for the reason that the Merchants' National Bank had previously received notice of the failure and suspension of the Citizens' Bank. At the time the latter bank passed under the control of a receiver it had on hand in its vaults as the entire amount of money in actual cash $159, which consisted in the main of small coins and change, and did not include any of the credits or money on deposit in the Merchants' National Bank belonging to it. At the time the Citizens' Bank suspended and closed its doors, and on the day the sight draft was presented for payment at the Merchants' National Bank, its deposits in the latter bank amounted to $2,260.44; and this amount of money has been paid over to the receiver, and is now in his hands. The agreed statement of facts also shows that on May 2, 1896, the day on which the note in question was received for collection, the Citizens' Bank had, as cash on hand, the sum of $7,206, and on the morning of May 4th it had $6,953, and on the morning of the 5th, $6,194, and on the 6th, $5,114. On May 2d the Citizens' Bank, in the usual course of business, bought, paid for, and cashed checks, drafts, and bills of exchange on other persons and banks to the total amount of $125.85, and on the same day sent these checks, drafts, and bills to the Merchants' National Bank, and obtained credit for the same as a deposit. On May 4th, in its usual course of business, it also bought, paid for, and cashed checks, drafts, and bills of exchange amounting in all to $2,954.56, and on the same day these were forwarded to said correspondent, and credit therefor received. On May 5th it bought, paid for, and cashed drafts and bills of exchange to the amount of $368.93, and these were sent on the same day to the Merchants' National Bank, and credit obtained therefor. According to the showing of the daily entries made in the books and records of the Citizens' Bank, it had on hand May 2, 1896, at the close of the day's business, in its safe, as cash, $13,589.93, and a total cash item of $24,590.01; on the 4th of May, accepting the authority of its books, it had on hand as cash $10,926, and a total cash item of $23,110.93; and on the 5th of May, $10,001.11, and a total cash item of $21,815.08; and on May 6th, $3,099.46, and a total cash item of $3,189.36. Of this latter amount the receiver has received in cash, and now has in his hands, the sum of $2,504.12. The facts show that it was the custom of the Citizens' Bank, when making collections for persons or customers residing west of Union City, to remit the amount collected, less collection charges, by means of drafts drawn on the Merchants' National Bank, and that it did not remit the amount so collected in money, and that all of the business connected with the collection of the note in question by the Citizens' Bank was conducted by it in the usual and ordinary way of making collections by banks, but appellant had no notice or knowledge of the insolvency or failure of the Citizens' Bank prior to the protest of the draft sent to it as a remittance of the proceeds of said note. The books of the bank, it is stated, do not show or represent,on the days mentioned, the true and actual amount of cash on hand, but simply show items that were carried on said books, and treated as cash, but in fact were not actual cash on hand; and the amount stated above, as shown by the bank's books to be cash, included amounts which the bank had on deposit with correspondent banks, including also the amount on deposit with the Merchants' National Bank. The questions submitted to the lower court under these facts were: First. Are the funds of the bank, in the hands of the receiver, impressed with a trust in favor of appellant to the amount of its claim? Second. Is it entitled to a preferential right over the general creditors of the insolvent bank? The lower court, under the facts, held that appellant was entitled to recover the full amount of its claim as a contract creditor, but denied its right to enforce a trust, or to be preferred in its claim over those of other creditors, and rendered judgment accordingly.

The question presented for our decision is, did the court err in its conclusions of law upon the facts stated? The principal contentions of appellant's learned counsel are: First. That under the facts the Citizens' Bank is shown to have served, in collecting the note in question, as the agent of appellant, and by mingling the proceeds of the claim with its own funds the latter became impressed with such a trust as will entitle appellant to pursue the proceeds, and reclaim them in the hands of the receiver, as its own separate property. Second. That the Citizens' Bank, by accepting the note for collection, and collecting it, and mingling the proceeds thereof with its own, at a time when it is shown to have been insolvent, was, under the circumstances, guilty of fraud, and for that reason cannot be held to have acquired any title to either the note or the money arising out of its collection. In regard to the second contention, it may be said that the rule is generally asserted and enforced that where a party has been induced to part with his...