SECURITY TRUST AND SAVINGS BANK, a Corporation, of Yuma, Arizona, Appellant,
JAMES B. BUTTON, Superintendent of Banks of the State of Arizona and Ex-officio Receiver of the YUMA VALLEY BANK, an Arizona Corporation, Insolvent, Appellee
APPEAL from a judgment of the Superior Court of the County of Yuma. M. T. Phelps, Judge. Judgment affirmed.
Mr. A. J. Eddy, for Appellant.
Mr. R. N. Campbell and Mr. H. F. Colman, for Appellee.
[39 Ariz. 407] McALISTER,
The superior court of Yuma county denied the Security Trust and Savings Bank a preference upon a claim for $34,439.63 filed with James B. Button as superintendent of banks and ex-officio receiver of the Yuma Valley Bank, and it has appealed from this order.
The record discloses that the Security Trust and Savings Bank and the Yuma Valley Bank were both doing a general banking business in the city of Yuma and that on June 20, 1930, the latter closed its doors and was taken over by the state superintendent of banks for liquidation. Two days before this occurred the Yuma Valley Bank drew a draft for $29,176.02 on its Los Angeles correspondent, the Citizens' National Trust and Savings Bank, payable to the plaintiff, Security Trust and Savings Bank, and delivered it in settlement of the balance existing that day as a result of an exchange of the checks which had been drawn on one of them and were then in the hands of the other. It appears that about 10:30 that morning this exchange occurred, that is, the Security Trust and Savings Bank delivered to the Yuma Valley Bank the checks in its possession that had been drawn on the latter, amounting to $32,805.20, and received at the same time those drawn [39 Ariz. 408] on it then in the hands of the Yuma Valley Bank, totaling $3,627.16, and that about 4 o'clock that afternoon, the draft in payment of the difference between these totals was executed and delivered, the Yuma Valley Bank having in the meantime gone over the checks taken to it by the Security Trust and Savings Bank, marked them "paid" and debited the accounts on which they were drawn.
The following day, June 19th, a similar transaction took place, the only difference being that the balance, and consequently the draft on the same correspondent bank in payment of it, was for a smaller sum, namely, $5,263.61.
Both drafts were forwarded in due course of business to the Security Trust and Savings Bank's correspondent in Los Angeles which presented them to the drawee, Citizens' National Trust and Savings Bank, for payment, but this was refused because the Yuma Valley Bank had no funds on deposit in that
bank, its account there being overdrawn. Upon receiving notice of this refusal the Security Trust and Savings Bank charged the checks back to the accounts to which they had been credited, and then presented the drafts to the superintendent of banks and demanded return of the checks or the amounts thereof but this was not granted, whereupon the Security Trust and Savings Bank, as the agent of those who had presented or sent the checks to it for credit, filed this claim for the aggregate of the two daily balances, $34,439.63, with the superintendent of banks asking that it be allowed as a preferred claim and paid out of the cash assets of the Yuma Valley Bank which exceeded the amount of the claim when the drafts were drawn and at all times since. Following a hearing the court denied the claim a preferred status but allowed it as a general claim, thus permitting the Security Trust and Savings Bank to share thereon proportionately with the general creditors [39 Ariz. 409] of the insolvent. It is this order from which the Security Trust and Savings Bank has appealed and the only question raised is whether the court was correct in making it.
Several errors are assigned but they are based principally upon one proposition and that is that by delivering to the Yuma Valley Bank for payment the checks which had been presented to the Security Trust and Savings Bank by its depositors for credit the Security Trust and Savings Bank made the Yuma Valley Bank its agent for their collection and that the effect of this was to create the relation of principal and agent between them and, therefore, to constitute the proceeds of the checks a trust fund for appellant in the hands of the Yuma Valley Bank as trustee. If delivery of these checks had the effect of creating a trust and this relationship continued throughout the transaction, the position of appellant is sound and should be sustained, but if, upon the other hand, it did not have this effect at all, or had it only until the issuance of the draft, it cannot be maintained.
The evidence discloses that the Yuma Valley Bank did not give the Security Trust and Savings Bank credit for any of the checks delivered to it either on the 18th or 19th of June and that neither of the banks carried a deposit with the other but that business of this character was transacted between them by the remittance method only, that commonly known as the reciprocal-accounts method not being in use at any time. It likewise appears that neither currency nor coin was ever used to satisfy such balances between them but that instead the draft of the bank against which the balance existed was made to serve this purpose. Hence, when appellant delivered the checks to the Yuma Valley Bank on the 18th and 19th of June by messenger and left them there without receiving credit for them it did so [39 Ariz. 410] with the understanding, resulting from long usage, that that bank later that day, after it had gone over them and charged them to the accounts of their respective drawers, would deliver to appellant its draft in payment of them, or rather of the balance existing after they had exchanged the checks held by one against the other. And in view of this situation appellant contends that by delivering the checks to the drawee bank for payment it made that bank its agent to collect them and remit the proceeds, thus creating the relation of principal and agent, and that inasmuch as no credit for the checks was given it then or afterwards, but the custom and consequently the agreement, was that the drawee bank would pay them later that day by its draft, this relationship did not cease upon issuance of the draft but continued thereafter.
Whether the relation of principal and agent arises between the holder and the drawee bank when a check is presented or sent to the latter for payment, either over its counter or by mail with instructions to remit, the authorities are not agreed. Those taking the position that it does indulge the fiction that the owner of the check makes the drawee bank his agent to collect from itself for him the amount Bank of Poplar Bluff v. Millspaugh,313 Mo. 112, 47 A.L.R. 754, 281 S.W. 733; Federal Reserve Bank of St. Louis v. Millspaugh,314 Mo. 1, 282 S.W. 706; Federal Reserve Bank of Richmond v. Peters,139 Va. 45, 42 A.L.R. 742, 123 S.E. 379; Kesl v. Hanover State Bank,109 Kan. 776, 204 P. 994. Those taking the opposite view, however, base their holding upon the ground that a check is an order on a bank to pay out of the funds of the drawer to the payee or a subsequent holder the amount named therein and when presented or sent to the drawee bank it is presented or sent for payment by that bank, not for collection, because all the [39 Ariz. 411] authority the bank needs to pay it is contained in the check itself; in fact, it is an order from the drawer which the bank disobeys at its risk. The transaction, it is argued, is one between the holder of the check and the drawee bank, both principals, since neither acts for the other but each for himself, for in the former rests the right to receive, and upon the latter devolves the obligation to pay, the amount of the check out of the drawer's funds. Leach v. Citizens' State Bank of Arthur,203 Iowa 782, 211 N.W. 522; Lamro State Bank v. Farmers' State Bank,34 S.D. 417, 148 N.W. 851; People v. Merchants' & Mechanics' Bank,78 N.Y. 269, 34 Am. Rep. 532. In ...