Smith & Setron Printing Co. v. State Ex Rel. Fulton

On September 12, 1930, the printing company deposited with the Merchants Trust Savings Bank checks totaling $1,326.59, and $52 in cash. These checks were drawn on banks located elsewhere than in the city of Cleveland, and were all indorsed in blank; that is, the indorsement was not restricted. The cash and checks were credited on the passbook of the depositing company and on the books of the bank.

On September 15, 1930, the superintendent of banks took charge and possession of the bank, as provided by Section 710-89, General Code, and he thereafter made collection of all of the checks in question.

It is stated that the bank refused payment of checks drawn by the depositor company against uncollected funds, before the funds were actually collected and received by the bank, if the bank had doubt as to the credit of the depositor, and always charged back to the depositor checks that were not honored.

The matter is in this court upon the petition in error of the depositor, it having been decided in the court of common pleas that its motion for an allowance of its claim on its deposit of September 13th, as a preferred claim, was not well taken.

It is therefore at once apparent that the sole question for this court's determination is whether the relation of debtor and creditor arose at the time of deposit, or at the time the checks were collected.

The depositor says that the question should be answered in its favor, upon the theory that such an answer would be in accordance with the general rule of law, and for the further reason that it had a contract with the bank which so provided. The company in the main relies upon this agreement, which is set forth on the first page of the company's deposit book. It is as follows:

"Notice. "Checks on this bank will be credited conditionally. If not found good at close of business, they may be charged back to depositors and the latter notified of the fact. Checks on other city banks may be carried over for presentation through the clearing house on the following day.

"In receiving items on deposit payable elsewhere than in Cleveland this bank assumes no responsibility for the failure of any of its direct or indirect collecting agents, and shall only be held liable when proceeds in actual funds or solvent credits shall have come into its possession. Under these conditions items previously credited may be charged back to the depositor's account. Items lost in transit may be charged back to depositor's account pending receipt of duplicates. Unless otherwise instructed, items may be mailed to drawee banks. Unpaid items may be returned by mail at depositor's risk. In making deposits the depositor hereby assents to the foregoing conditions."

It is not charged that the officers and directors of the bank knew of its insolvency, and that phase of the situation does therefore not enter into this case.

There can be no question that had these checks been deposited for collection, title would not have passed to the bank. Had such been done the relation of principal and agent would have been created. But the facts in this case do not disclose that such was done; nor can it be inferred, unless the notice appearing in the deposit book, just quoted, so provides. The fact that a bank has a right to charge back a dishonored check as against its customer's account is not alone sufficient to establish the fact that it took the paper for collection purposes only.

It is well stated in the case of Raynor v.Scandinavian-American Bank, 122 Wash. 150, 210 P. 499, 25 A.L.R., 716, that in the absence of a special agreement to the contrary the deposit of a check in a bank constitutes not a deposit for collection merely, but is a sale of the paper to the bank, and passes title to the bank, subject only to the right of rescission if the paper subsequently proves to be without value. See, also, Dubuque Fruit Co. v. C.C. Emerson Co., 201 Iowa 129, 206 N.W. 672; Cragie v. Hadley, 99 N.Y. 131, 1 N.E. 537, 52 Am. Rep., 9; Morse on Banks and Banking, volume 2, Section 578et seq. We are advised that it is otherwise held in some jurisdictions, which adhere to the old-considered rule that the relationship is that of bailor and bailee, but we believe that it may now be safely stated that the better rule, recognizing the necessity created by the enormous increase in checking and commercial paper, should be followed.

A bank in the ordinary course of business does not receive a consideration for collecting the checks deposited by its customer. The checks in the instant transaction were not discounted; and it seems to us, in view of the fact that cash was deposited along with the checks, that the plaintiff in error intended and understood that the whole amount was to be credited to its account, and not merely for the purpose of collection; at least the bank received no consideration for so doing.

It appears that a similar situation has been considered in this state in Howe v. Akron Savings Bank, 16 C.C. (N.S.), 320, 31 C.D., 516, where it was held in the syllabus that: "Checks and drafts upon banks deposited with money and passed to the depositor's credit are to be treated as becoming the property of the bank, raising the relation of debtor and creditor, unless there is an express agreement that they are deposited for collection only." The case of First National Bank of Troy v.First National Bank of Cincinnati, 33 O.L.R., 102, is likewise in point.

Considering now the deposit book "Notice," we are unable to understand that its provisions are other than a statement of the general law as herein previously announced. It will be noted that these deposits are to be credited, not received for collection only, and such conditions as are therein stated pertain only to such checks as shall be dishonored. In the matter of the checks in question, there was no dishonor. The checks were paid when presented and the conditional credit clause did not apply.

It seems to this court highly unfair that a depositor should expect his bank to honor his checks immediately after a deposit of a number of checks large in amount, issued on banks located at considerable distances. He should not ask a bank to assume that risk for the sake of his business; for which favor he does not pay. And it seems but fair that it is the customer's duty to keep his credit good and his checking within reasonable bounds until his deposited checks shall have passed through clearance.

For the reasons indicated the judgment of the trial court is affirmed.

Judgment affirmed.

LEMERT and MONTGOMERY, JJ., concur.

Judges of the Fifth Appellate District, sitting by designation in the Eighth Appellate District.