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National Bank of America v. United States Fidelity & Guaranty Co.

June 4, 1934


Appeal from the District Court of the United States for the Northern District of Indiana, Hammond Division; Thomas W. Slick, Judge.

Author: Sparks

Before EVANS, SPARKS, and FITZHENRY, Circuit Judges.

SPARKS, Circuit Judge.

Appellee instituted this action in equity against the National Bank of America of Gary, Indiana, and David H. Jennings, its receiver, to recover the amount of a check which had been drawn on the Gary State Bank and mailed to and collected by the National Bank of America through the Gary Clearing House before the National Bank had closed.

On December 30, 1931, appellee received from the Commercial Trust Company of Gary that company's check for $2,196.89, dated December 29, 1931, and payable to the order of appellee. On the date of its receipt appellee endorsed and deposited it with the Security Trust Company of Indianapolis, which in turn endorsed and delivered it to the Fletcher American National Bank of Indianapolis. That bank also endorsed and mailed it to its correspondent, the appellant bank, for collection and remittance. The last named bank received it on the morning of December 31, 1931, and on the same day presented and collected it in the manner hereinafter described, from the Gary State Bank through the Gary Clearing House, whose membership consisted solely of the Gary banks hereinbefore mentioned.

In addition to this check, appellant bank had received other checks drawn on the Gary State Bank and the First National Bank of Gary, and as a result of the clearings of that day, appellant bank owed the clearing house $1,044.75, for which sum it drew its check on the Continental Illinois Bank and Trust Company of Chicago, payable to the order of the clearing house. As a result of the clearing house transaction the Gary State Bank received the check for $2,196.89, stamped it paid, charged it to the account of the Commercial Trust Company, and delivered it to the drawer.

All the banks herein referred to were closed for holiday on January 1, 1932, and on Sunday, January 3, the directors of appellant bank met and adopted a resolution not to open for business on January 4, at which time the bank was insolvent. The Comptroller of the Currency was notified, and the receiver took charge of the assets at eight o'clock on the morning of January 4.

On and prior to January 2, 1932, it was the custom of the Fletcher Bank to send checks drawn on Gary banks to appellant bank for collection, and the custom of the latter to present those checks to the Gary Clearing House for collection, and when collected, appellant bank would mail its check or draft on its correspondent bank to the Fletcher Bank in payment of the collection so made. That custom was followed in this instance.

The total amount of checks sent by the Fletcher Bank to and received by appellant bank on December 31, was $3,660.83, and they were collected on that date through the clearing house, and appellant bank drew its draft on the Continental Bank for that amount and sent it to the Fletcher Bank, which in turn mailed it the same day to the Continental Bank, by which it was received on January 4, after appellant bank was closed. Hence payment was refused. At that time appellant bank had on deposit with the Continental a sum in excess of the amount of the draft.

The Fletcher Bank received the unpaid draft from the Continental on January 5, 1932, and charged it to the account of appellant bank, which left a deposit balance due appellant bank from the Fletcher Bank of $333.91, which was paid to the receiver on March 3, 1932. Subsequently upon demand the Fletcher Bank paid to the receiver the amount of the draft which it had charged to appellant bank, and thereupon charged the amount of the check for $2,196.89 against the Security Trust Company, which in turn charged the same amount to appellee's account. At the time the receiver took charge of appellant bank there were, and ever since that time there have been, in its possession, cash items in excess of appellee's claim.

The court found the facts specially and rendered its conclusion of law, and entered a decree for appellee for the full amount of the check, with interest, as a preferred claim. The theory upon which the bill and the decree were based was that at the time of the bank's insolvency it held in trust the amount of the proceeds of appellee's check among its cash and cash items, and that those proceeds constituted no part of the bank's assets, hence were not distributable to its creditors.

Whether a trust relationship existed between the bank and appellee, by virtue of the circumstances hereinbefore set forth, is to be determined by sections 1, 2, 9, and 10 of the Indiana Uniform Bank Collection Code, chapter 164, Indiana Acts 1929. Section 1 defines the word "bank" as meaning any person, firm or corporation engaged in the business of receiving and paying deposits of money, and the word "item" as meaning any check, note or other instrument for the payment of money. Section 2 provides that, unless otherwise agreed, a bank receiving an item on deposit for collection, and all subsequent banks receiving it for that purpose, are agents and subagents, respectively, of the depositor. Section 9 provides that where ordinary care is exercised, any agent collecting bank, without becoming responsible as debtor therefor, may receive in payment of an item, whether presented by mail, through the clearing house, or over the counter of the drawee or payor, in lieu of money, either the check or draft of the drawee or payor upon another bank, or check or draft of any other bank upon any bank other than the drawee or payor of the item, or it may make such settlement as may be customary in a local clearing house or between clearing banks or otherwise. A proviso of this section states that the agent collecting bank shall become liable as debtor for the item as if it had actually received payment in cash, if at the time of receipt it shall request or accept in payment an unconditional credit which has been given to it on the books of the drawee or payor, or on the books of any other bank. Section 10 provides that any agent collecting bank, in lieu of money, may receive from any subsequent bank in the chain of collection, remittance for an item which has been paid, in the same manner as set forth in section 9, and with the same provision with respect to establishing a debtor relationship upon the request or acceptance of an unconditional credit. In view of those sections of the Indiana Code it is obvious that the relationship existing between appellant bank and appellee, from and subseqent to the time it received the check for collection was that of agent and principal, and not mere debtor and creditor.

In the absence of statutory authority, or authority expressly granted by the terms of the agency, the collecting bank had no right to accept anything in payment except legal tender money, and if it had done so, the relationship of debtor and creditor would have arisen because the collecting bank in accepting other than cash in payment of the check would not have been acting within the scope of its agency (Federal Reserve Bank v. Malloy, 264 U.S. 160, 44 S. Ct. 296, 68 L. Ed. 617, 31 A.L.R. 1261), and the trust relationship would not follow a subsequent transfer of the thing received as payment. But the first clause of section 9 specifically authorized the bank to receive the exchanged checks drawn on it and presented to it through the clearing house, in lieu of money in payment of appellee's check, without becoming responsible as debtor. It is true that the proviso in section 9 supplies means for establishing a debtor relation, but those means are not presented here. It must be held under the state statute, therefore, that appellant was the agent of appellee, and in receiving the proceeds of the check it did so as trustee for appellee.

It is contended by appellants, however, that the Indiana statute will not override the provisions of R.S. § 5236 (12 USCA § 194), which provides for the distribution by the Comptroller of the entire assets of the bank, giving no preference to any claim except for moneys to reimburse the United States for advances in redeeming the notes. With respect to state legislation affecting national ...

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