Hicks, Arch. R., Jr.

KnowledgeBank at OSU

NOTES AND COMMENTSBANKS AND BANKINGRELATIONSHIP BETWEEN A DEPOSITOR AND THE DEPOSITORYBANK; RIGHT TO A PREFERENCE ON INSOLVENCYThe plaintiff was a depositor in the Standard Trust Bank of Cleve-land. On Saturday morning, December 19, 1931, he deposited checkson local banks, indorsed in blank, to the amount of $1295.6o. On thefollowing Monday, before the checks were put through clearance, theSuperintendent of Banks took charge of the bank for liquidation pur-poses. The checks were then sent through clearance and the proceedswere received by the liquidating agent. There was no special agree-ment, other than the words on the deposit slip, that the, checks weredeposited for the purpose of collection. The deposit slip read: "In re-ceiving items for deposit or collection, this bank acts only as depositors'collecting agent * * *." The commercial passbook read: "All itemspayable outside the city are taken with the understanding that this bankacts as your collecting agent * * *." The Superintendent of Banks re-jected the plaintiff's claim for a preference, after which this suit wascommenced in the Common Pleas Court of Cuyahoga County. Thetrial court found for the plaintiff and its .decision was affirmed by theCourt of Appeals. The Ohio Supreme Court, Zimmerman, J., dissent-ing, held that the plaintiff was not entitled to a preferred claim. Squire,Supt. of Banks v. Goulder, 131 Ohio St. lO6, 2 N.E. (2d) 2, 5 OhioOp. 465 (1936).In the absence of statute, the plaintiff's right to a preferred claimdepends upon the relationship which the deposit in question created be-tween the plaintiff and the depository bank. If the title to the checkspassed to the bank, the relationship of debtor-creditor arose, and theplaintiff can take only as a general creditor. On the other hand, if thedepositor retained title to the instruments, the relationship became one ofprincipal and agent, and the plaintiff has a valid right to a preferredclaim.It is well settled that the title to checks or other paper deposited forpurposes of collection does not pass to the depository bank. Jones v. K-breth, 49 Ohio St. 40i, 31 N.E. 346 (1892); Helsinger v. Tricket,212NOTES AND COMMENTS Zi.386 Ohio St. 286, 99 N.E. 305, Ann. Cas. 19 I 3 D 421 (I912); Pas-caganda National Bank v. Fed. Reserve Bank, 3 Fed. (2d) 465(1921); Richardson v. Louisvlle Banking Co., 94 Fed. 442, 36C.C.A. 307 (1899); Yerkes v. National Bank, 69 N.Y. 382, 25 Am.Rep. 208 (1877). Where the instrument has been restrictively indorsed"for collection," it is especially clear that the title was intended to remainin the depositor, and that the bank was to become merely an agent forcollection. First National Bank v. First National Bank, 58 Ohio St.207, 5o N.E. 723, 65 Am. St. Rep. 748, 41 L.R.A. 584 (1898);Sweeney v. Easter, i Wall. 166, 17 L. Ed. 681 (1863). However,this is true even if the instrument was indorsed in blank, if the partiesintended the deposit to be one for collection only. Richardson v. NewOrleans Coffee Co., 102 Fed. 785, 43 C.C.A. 583 (1900).But where the instrument is indorsed without restriction and thereis no special agreement that it is taken for collection only, there is a dis-tinct conflict of authority as to the relationship which the deposit createsbetween the depositor and the bank. Two views have been set forth,both of which have found ample support among the reported cases. Oneview, which seems to represent the weight of authority, is that the titlepasses to the bank, thus creating the status of debtor-creditor. Shaw v.Bauman, 34 Ohio St. 25 (877); Bank v. Brewing Co., 50 Ohio St.151, 33 N.E. 1054, 4o Am. St. Rep. 66o (1893); The Smith andSetron Printing Co. v. The State, ex rel Fulton, 40 Ohio App. 32(1931); Howev. Akron Say. Bank, 16 Ohio C.C. (N.S.) 320(1905);Heinrich, Ex'r v. First National Bank, 219 N.Y. I, 113 N.E. 531,L.R.A. 19 17A 655 (1916); Security National Bank v. Old NationalBank, 241 Fed. I, 154 C.C.A. 1 (1917); Taft v. Quinsigamond Na-tional Bank, 172 Mass. 363, 52 N.E. 387 (1899). And the aboverule is applicable even though the bank reserves the right to charge thedepositor's account with the amount of the checks in case of their dis-honor. The Smith and Setron Printing Co. v. Fulton, supra; Noble v.Doughten, 72 Kans. 336, 83 Pac. 1048, 3 L.R.A. (N.S.) 1167(1905); Plumas County Bank v. Bank of Rideout, Smith & Co., 165Cal. 126, 131 Pac. 360, 47 L.R.A. (N.S.) 552 (1913). The viewthat the tide passes to the bank is strengthened and sometimes based uponthe fact that the depositor may draw upon or has drawn upon the de-posit. A1merican Trust & Savings Bank v. Gueder, P. Mfg. Co., 15oI-I 336, 37 N.E. 227 (1894); Security Bank v. Northwestern FuelCO., 58 Minn. 141, 59 N.W. 987 (1894). However, the above rule,being based upon the presumed intent of the parties, yields to a mani-festation of a contrary intent, and a notice in the bank book or on the214 LAW JOURNAL - MARCH) 1937deposit slip that the bank acts only as a collecting agent prevents the pass-age of title. South Park Foundry & Mach. Go. v. Chicago & G.W.R.Co., 75 Minn. I86, 77 N.W. 796 (1899); People, ex rel Russell v.Mich. Ave. Trust Co., 242 I1. App. 579 (1926).The opposing view is that, even though there is no special agreementthat the deposit is for collection purposes, still there is a presumption tothat effect and title remains in the depositor. Baldwin State Bank v.NationalBank, 144 Ga. I81, 86 S.E. 538 (1915); La. Ice Co. v. StateNational Bank, McGlain (La) 181 (1881); Gulf State Lumber Co.v. Citizens' First National Bank, 30 Ga. App. 709, 119 S.E. 426(1923). Even though credit is given the depositor, title remains in him.Beal v. Somerville, 50 Fed. 647, I C.C.A. 598, 5 U. S. App. 14, 17L.R.A. 291 (1892); U. S. National Bank v. Geer, 53 Nebr. 67, 73N.W. 266, 41 L.R.A. 439 (1897). However, if the depositor hasactually drawn upon the deposit, title has passed to the bank. StandardTrust Co. v. Commercial National Bank, 166 N. C. I12, 81 S.E. 1074(1914); W. I. Barton Seed, Feed, & Implement Co. v. MercantileNational Bank, 128 Tenn. 320, 16o S.W. 848 (1913); Fourth Na-tional Bank v. Mayer, 89 Ga. io8, 14 S.E. 891 (1892); and seeRe Jarmarlousky, 249 Fed. 319, 161 C.C.A. 327, L.R.A. i 9 i8E634 (1918).Ohio cases have accepted the doctrine that in the absence of specialcircumstances the deposit is a general one and the depositor becomes acreditor of the bank. Bank v. Brewing Co., supra; Shaw v. Bauman,supra; Fulton v. Univ. of Dayton, 129 Ohio St. 9o , 193 N.E. 758,i Ohio Op. 408, 16 Ohio L. Abs. 427 (934); Fulton v. Main, 128Ohio St. 457, 191 N.E. 742, 40 Ohio L. Rep. 65o (934). But if thebank accepts the deposit for a specific purpose, it becomes only an agentof the depositor. Kopp Clay Co. v. Fulton, 125 Ohio St. 512, 182 N.E.494, 36 Ohio L. Rep. 421 (1932).The majority opinion in the principal case approved the rule that inthe absence of a special agreement, title passes to the bank. It held thatthe notice on the deposit slip, once clarified by the statement on the passbook, clearly applied only to checks on banks outside the city. The dis-sent was based mainly on a contrary interpretation of this notice andalso on the fact that the plaintiff did not draw upon the deposit, nor hadhe been in the habit of drawing on such depositts, before collection.Although the general rule that title presumedly passes to the bank seemsto be supported by sound reason and authority, yet it is submitted that onthe facts of the instant-case the court might well have found, with thedissenting judge, that the intention of the parties was otherwise.Section 714, Ohio Gen. Code, provides that "In any case where anybank * * * shall have in its possession the proceeds realized from thecollection of any negotiable instrument by it or by any other collectingagency, at the time that such bank is dosed by the superintendent ofbanks of Ohio * * * the assets of such bank so dosed shall be impressedwith a trust in behalf of the owner of the instrument the proceeds ofwhich are held by such bank so dosed * * * and the owner of thenegotiable instrument shall be entitled to payment upon liquidation ofthe assets of such bank as a preferred claim."Both the majority and the dissenting opinions in the instant case failedto mention this statutory provision. But in Fulton v. Baker-Toledo Co.,128 Ohio St. 226, 19o N.E. 459, 40 Ohio L. Rep. 647, 93 A.L.R.933, 14 Ohio L. Abs. 473 (1934), the Supreme Court took the viewthat Section 714 does not extend to those cases where formerly a debtor-creditor relationship existed. In the light of the express wording of thestatute that "the owner * * * shall be entitled to a preferred claim," itwould seem that the court was correct and that the statute presupposesan agency relationship. Therefore, having determined that the statusbetween the parties was that of debtor-creditor, the court was justified,on the basis of its holding in Fulton v. Baker-Toledo Co., supra, in dis-regarding the above statute.Had the facts in the principal case shown that the bank on the receiptof the deposit in question was insolvent to the knowledge of its officers,there would have been such fraud as to prevent the passage of title to thebank, and to entitle the plaintiff to have a trust for his benefit imposedupon the funds in the hands of the superintendent. Orme v. Baker, 74Ohio St. 337, 78 N.E. 439, 113 Am. St. Rep. 968 (i9o6). Gener-ally, under such circumstances, the courts have established a trust orpreference, provided the requirements of tracing or augmentation ofassets, whichever the forum requires, have been met. Beal v. Someruille,supra; St. Louis & Santa Fe Ry. Co. v. Johnston, 133 U. S. 566,33 L.Ed. 683, io S. Ct. 390 (189o); Cragie v. Hadley, 99 N.Y.131, 52 Am. Rep. 9, x N.E. 537 (I885). And see 2o A.L.R. 12o6,25 A.L.R. 728, 37 A.L.R. 620. In Ohio, though the depositor mustbe able to trace the funds into the bank's assets to entitle him to a trustor preference, it is not essential that he trace the particular dollars inspecie. Orme v. Baker, supra; Fulton v. Univ. of Dayton, supra.ARCH. R. HIcKs, JR.NOTES AND COMMENTS 215

Relationship Between a Depositor and the Depository Bank; Right to a Preference on Insolvency

https://kb.osu.edu/bitstream/1811/72160/1/OSLJ_V3N2_0212.pdf

Relationship Between a Depositor and the Depository Bank; Right to a Preference on Insolvency

Abstract

Similar works

Full text

Available Versions

KnowledgeBank at OSU