Leach v. Farmers Savings Bank ( 1927 )

A so-called claim for preference such as this is merely one for the establishment of claimant's ownership of property in the possession of the receiver, and a demand for decree for its restitution to claimant. Claimant is not entitled to be preferred in the payment of a liability incurred by the insolvent for the loss of claimant's property. Claimant, to establish his right, must show: (1) The existence of some concrete fund or article or item of property (2) of which the claimant is the owner(Farnsworth v. Muscatine P. P.I. Co., 177 Iowa 21, 30), (3) of such nature that its receipt by the bank would augment the assets in its possession (Brooke v. King, 104 Iowa 713). (4) He must show that his property did come into the possession of the bank (5) under such circumstances that he did not lose, and the bank did not acquire, title to it. (6) It must appear that "the fund has increased the present assets of the bank, and (7) that it may be taken therefrom without impairment of the rights of creditors." First St. Bank v. Oelke, 149 Iowa 662, 667.

The existence of a fund or other item of property belonging to the claimant and capable of augmenting the assets in the possession of the bank is not shown. The county treasurer was a depositor in the defendant bank. There is no suggestion that the deposits by the county treasurer were unauthorized or wrongful. As rightdoing, not wrongdoing, is presumed, it must be presumed that the deposits to the county treasurer's account were rightful; that the title to the funds deposited by him had passed to the bank; and that the relationship between the bank and the county treasurer was that of debtor and creditor. The state of the county treasurer's account at no time is shown. For all that appears, it may have been, at the times under consideration, overdrawn; but, if we assume that there were in the account credit balances equal in amount to the checks drawn in favor of the city treasurer, the fact remains that the bank was merely indebted to the county treasurer to the amount of such credit balances, and that the checks at most operated, to the extent of the amount thereof, to substitute the city treasurer as the creditor of the bank, in place of the county treasurer. The result was merely that the city treasurer became the creditor of the bank to the amount of the check. The parties intended no differently; for the testimony of the city treasurer, who was vice president of the bank, is that this (so-called) money was put into the bank with the balance of the bank's funds, and treated the same as the money of any depositor. This was known by the city council. The mayor received the vouchers from the county treasurer and delivered them to the city treasurer. The council made settlements with the city treasurer, and always took the checks and figured them up. Interest was allowed and credited on the balances. The assets of the bank were not increased a penny by the county treasurer's checks. Messengerv. Carroll Tr. Sav. Bank, 193 Iowa 608, is at this point made the scapegoat to bear into the wilderness the iniquity of taking the bank's money, which, on insolvency, the law gives to depositors generally, and giving it to one of them. In that case the claimant to a preference was neither in fact nor ostensibly a depositor or creditor of the defendant bank. The claimant there drew a sight draft upon a customer of the bank, with a bill of lading attached, and sent it to the bank, with directions to collect and remit. The amount was $1,411.98. The bank was instructed to surrender the bill of lading only on payment of the draft and charges, and to remit the full amount of the draft to claimant. The bank had not less than $15,000 in cash on hand up to the time of suspension, and not less than $10,000 passed into the hands of the receiver. The customer had on deposit in the same bank $4,500. The customer drew his check against this deposit. The check was charged to his account, and the amount put into the form of Chicago exchange, and thus remitted. The transaction in that case, therefore, was the ordinary one where a bank in full operation receives a collection against a depositor and accepts for the collection the depositor's check upon his deposit of a much larger amount. The bank actually had a considerable cash reserve. It received the sight draft as agent for collection from a non-depositor, in the regular course of business, and it undertook to represent the drawer, in whose interest alone by the assumption of the agency it was bound to act. Under the evidence there, the actual cash would, in the regular routine of the business, if demanded, have been drawn out and paid. The bank was authorized to make collection only in cash. The check was charged to the depositor's account. The proceeds, assumed to be from funds which it in fact had on hand, were held as agent. The bank actually had the money with which to pay without embarrassment. It assumed, not an implied relationship, but the express relationship of agent for that money. There was nothing to suggest collusion or fraud. The case was a very different one from a mere formal transfer of credit by means of check from one depositor to another, — a changing from what must be assumed to have been a lawful deposit, to an unlawful one, by a failing bank, to the prejudice of the other general depositors. There was nothing in the transaction in the Messenger case out of the ordinary, and nothing to impugn it as a usual one in the regular course of business of a going bank. The evidence in the case here shows that the defendant bank, at the time of the transactions under review, and for a long time anterior thereto, was tottering to its fall. As has been said, there is no evidence of the state of the county treasurer's account. As is well known, credits to such accounts consist largely of the tax receipts of customers, charged to the customers, or perhaps carried, in some cases, in the cash items. That the bank permitted overdrafts is shown by the item of overdrafts of upwards of $9,000 reported by the receiver. There is no evidence of the amount of cash on hand in the bank at any time, except that, when the bank closed, it had cash, as shown by the inventory, to the amount of $6,316.61, and "cash items" $1,677.93, the nature of which is not shown. There is no evidence whatever of the amount of cash on hand at the time of the giving of the county treasurer's checks, or at any other time than December 19, 1924, the date of closing. The record does show the total of "money in banks, including cash," daily for many months, but does not separate the cash from the bank balances. That the bank balances were subject to offset by reason of indebtedness on loans and rediscounts with the depositary banks is a fair inference, not only from the condition of the bank, but from the evidence that, at the date of closing, the total amount of the bank balances was $11,919.35; and these were subject to offsets claimed in the depositary banks, amounting to $6,137.31, besides unadjusted rediscounts of $11,000. The total amount of deposits, and therefore the amount of reserve required, is not shown, except that, at the time of closing, the deposits amounted to $62,347.55 and the commercial deposits to $261,274.03, — requiring, under the statute, a reserve of not less than $44,000. The reserve is shown to have been subject to great fluctuations. The amount of cash and deposits in banks was, on April 2, 1921, $34,959.02; on April 4, 1921, $27,839.82; on April 22, 1921, $20,722.38; on May 12, 1921, $17,449.81, — at no time until July 21, 1921, amounting to $44,000. It shows on February 28, 1923, a total of $29,629.39; on July 13, 1923, $26,629.39; on December 29, 1923, $22,551.36; on January 5, 1924, $20,156.90; on February 26, 1924, $17,851.40; on August 29, 1924, $13,391.74; on November 18, 1924, $14,818.44. The extent and manner of the doing of the business of the bank at the dates of the county treasurer's checks, and whether or not the bank was paying or would pay all checks as presented, and the extent of its ability to pay its depositors, are not shown.

On July 18, 1924, the directors put into the bank their notes aggregating $25,000, and took out excess loans to that amount. On November 25, 1924, they put in $39,000 in cash, and took out an equivalent amount in the notes of themselves and others. There was paid out in 1924 $3,348,386.18. The examiner in charge estimated that there would be a deficiency of $100,000 in paying deposits.

The city treasurer would have no authority to accept in payment of taxes collected by the county treasurer drafts on bank correspondents' accounts. On this record, it would be fallacious to hold as a proved fact that if, on April 24, 1924, — even though, on that date, as the evidence shows, the "amount of money in various banks, including cash on hand," was $57,490.97, — the vice president of the bank, as city treasurer, had presented to himself, as vice president of the bank, the county treasurer's check for $7,608.09, it would have been in good faith paid in cash over the counter, and would have been taken out of the bank, and that the acceptance and deposit of the check were equivalent to the receipt and redeposit of the cash. Equally without foundation would it be to hold that, on October 25, 1924, though the "amount of money in various banks, including cash," was then $31,676.09, a like process would have resulted in the taking out by the vice president of the bank, as city treasurer, of the cash for $6,276.67. The condition of the bank and the well known history of banks in similar condition during the last few years tell us that an insistence upon the withdrawal of public funds or the payment of such amounts in cash for the purpose of actual withdrawal would have resulted in closing the doors. That the vice president of such a bank, acting as city treasurer, would withdraw the money, or had any intention of paying the checks in money, or performing any act equivalent thereto; is phantasmic.

It is a fiction, therefore, to say that, on April 25, 1924, the city had $7,608.09, or even a fraction of it, in the form of concrete property, capable of increasing the assets in the hands of the bank, and that it came into the possession of the bank to the augmentation of such assets. It is a fiction to say that the assets in the possession of the bank were augmented thereby, a fiction to hold that the city's property came into the possession of the receiver, and impossible to say "that the fund or some part thereof still exists in some tangible form in the receiver's hands" (Hudspeth v. Union Tr. Sav. Bank, 197 Iowa 913), or that such sum, or any fraction of it, upon this record, "has increased the present assets of the bank, and that it may be taken therefrom without impairment of the rights of creditors." FirstSt. Bank v. Oelke, 149 Iowa 662, 667. These observations apply even more emphatically to the credit of October 25, 1924, $6,276.67, entered six months nearer to, and less than two months before, final closing, and one month before the directors put in $39,000 in cash. The law gives the right of preference to depositors. At the risk of repeating, the county had not money, but a credit, in the bank. The city treasurer took, not money, but a check. He did not intend, as the city treasurer, to demand, or as the officer of the bank, to pay, cash on the check; for the evidence is positive that the city deposits were taken the same as other deposits. Though it was not intended to demand or pay cash, the majority opinion imputes such intention, contrary to the fact, and presumes a presentment of the check by the city treasurer to himself, as vice president, the receipt of the cash, and the redeposit of it; and this, not only in flat contradiction of the evidence of what the purpose was, but without any evidence that cash could be paid, and in the face of convincing circumstantial evidence that it would not have been paid. Upon these fictions the majority opinion builds another fiction, that the assets in the hands of the bank were increased. On these is pyramided the further fiction that cash belonging to the city was held by the bank in the capacity of trustee, and retained in its possession while it was making payments in the millions. On these fictions is erected the next one, that this money "has increased the present assets of the bank, and that it may be taken therefrom without impairment of the rights of creditors." It is no answer to say that the city treasurer had no authority to receive in payment of the city taxes anything but cash or its equivalent. He did take a transfer of credit only. Therefore he did not receive payment. "It is a condition, and not a theory, that confronts us here." The county must be assumed to have taken a bond for the payment of its deposits. According to the evidence of actual intention, and what was actually done, the city treasurer did not receive payment of the taxes collected by the treasurer. The consequences of the misfeasance of the city's officers ought not to be visited on the depositors. The transfer of credit from the county treasurer's account to the city treasurer's account on the books of the bank was made with no purpose of giving the city greater rights than the county had, or of changing the bank's relationship to the fund from that of creditor to that of trustee. It is a wrong to the depositors to impute such an intention.

A bank failure works great hardships to all classes of depositors. Though their legal relationship to the bank is that of debtor and creditor, yet in popular estimation, in making the deposits and in consequences to them, depositors put their money in the bank in the belief that it is to be returned to them on demand, or at the time stipulated therefor. The savings of the aged and the poor, the living of the widow and orphan, are there. These suffer cruel distress when the bank fails. To allay the sufferings of depositors as far as practicable, the law gives them a right of preference in the distribution of the property belonging to the bank. The law is humane, and its beneficient provisions ought not to be diminished or defeated by the acceptance of presumptions unfounded in experience, or so fanciful as to be mere fictions. The property in question here (barring fictions) does belong to the bank. The contest here is with depositors. Stilson v. First St. Bank, 152 Iowa 724, 730. We have been receding from fundamental principles, and from our precedents recognizing facts, such as Brooke v. King, 104 Iowa 713; Jewell v. Clay, 107 Iowa 52, 56;Bradley v. Chesebrough, 111 Iowa 126; First St. Bank v. Oelke,149 Iowa 662; Farnsworth v. Muscatine P. P.I. Co., 177 Iowa 20, — drifting into fictions, until we have reached, as it seems to me, in the present case, not only a factitious, but a most unjust, result. These conclusions in general, and in particular that there was merely a change of creditors of the bank, no augmentation of its assets, and no funds of claimant traced into the hands of the receiver, are sustained by the following authorities: People v. Merchants Mechanics' Bank, 78 N.Y. 269;Citizens Bank v. Bradley, 136 S.C. 511 (134 S.E. 510); Zimmerliv. Northern Bank Tr. Co., 111 Wn. 624 (191 P. 788);Hecker-Jones-Jewell Mill. Co. v. Cosmopolitan Tr. Co.,242 Mass. 181 (136 N.E. 333); Lawrence v. Lincoln County Trust Co. (Me.),131 A. 863; Chetopa St. Bank v. Farmers Merch. St. Bank,114 Kan. 463 (218 P. 1000); Larabee Flour Mills v. First Nat. Bank, 13 Fed. (2d Series) 330; Nyssa-Arcadia Drainage Dist. v. FirstNat. Bank, 3 Fed. (2d Series) 648; American Bank v. People's Bank (Mo. App.), 255 S.W. 943; Lamro St. Bank v. Farmers' St. Bank,34 S.D. 417 (148 N.W. 851); Empire St. Sur. Co. v. Carroll County, 114 C.C.A. 435 (194 Fed. 593); Beard v. Independent Dist., 31 C.C.A. 562 88 Fed. 375); Phoenix Title Tr. Co. v. Central Bank (Ariz.), 247 P. 1097.

I think the judgment should be reversed.