Opinion
No. 29899.
March 21, 1932.
1. BANKS AND BANKING.
As respects preference, upon collection of draft, collecting bank ceases to be agent and becomes debtor of forwarding bank or its principal.
2. BANKS AND BANKING.
Neither statute preventing for ninety-six hours remission of proceeds of draft, nor attachment suit, converted collecting bank into trustee for forwarding bank or latter's principal (Code 1930, sections 173, 7106).
3. BANKS AND BANKING.
Mere admission in collecting bank's pleading in attachment suit that it had possession of cash paid on draft could not change its relation to forwarding bank, or latter's principal, from debtor to trustee, as respects rights of petitioner for preference not party to attachment suit.
4. BANKS AND BANKING.
Neither forwarding bank nor its principal is entitled, upon failure of collecting bank, to preference to money collected on draft.
APPEAL from chancery court of Lawrence county. HON. T. PRICE DALE, Chancellor.
Flowers, Brown Hester, and F.W. Bradshaw, all of Jackson, for appellant.
After a bank to which a check was sent for collection collects the same, the relation between such bank and forwarder of the item for collection is that of debtor and creditor and not that of principal and agent.
Love v. Federal Land Bank, 157 Miss. 52, 127 So. 720; Alexander County National Bank v. Conner, 110 Miss. 653, 70 So. 827; Billingsley v. Pollock, 69 Miss. 759, 13 So. 828, 30 Am. St. Rep. 585.
When a draft is forwarded to a bank for collection and remittance, and collection is made and the proceeds placed in the vaults of the bank, a draft for the amount less charges for the collection payment, such proceeds do not become a trust fund in the hands of the bank.
Morse on Banks Banking (5 Ed.), sec. 248.
When, however, the paper has once been collected by the correspondent bank, and it has received the proceeds therefor, the relation between the remitting bank and itself is changed from that of principal and agent to that of debtor and creditor, and title to such proceeds will, in the absence of an agreement to the contrary, vest in the correspondent bank.
3 R.C.L., sec. 265, p. 636.
The holder of a cashier's check of a failed bank is not entitled to a preference claim against the assets of a failed bank. The same rule applies to the holder of a claim against a failed bank where the bank makes a collection and fails, or when some other cause intervenes, to prohibit the bank from issuing a draft or cashier's check for the amount of the collection, and then subsequently fails.
Jourdan v. Bennett, 119 Miss. 576, 81 So. 239.
It is clear from section 1844 of the 1930 Code and subsequent statutes under the subject of garnishment, that the relation of debtor and creditor existing when attachment and/or garnishment is served is not changed but continues to exist and the only effect of an attachment and/or garnishment, when successful, is to require the debtor to pay what he owes his original creditor to the party for whose benefit the attachment or garnishment is levied.
A judgment against a garnishee does not operate as a transfer to the garnishing creditor of the debt owing by the garnishee, nor until payment thereof is it a bar to a suit against the garnishee by the defendant, his creditor.
Railroad Company v. Fulton, 71 Miss. 385, 14 So. 271.
The 96 hour law, however, in no way altered or changed the common-law rule. This section was enacted for the purpose of having the collecting bank remain the debtor of the consignor or its assignee for a sufficient length of time, during which time consignee could examine his purchase and bring suit if necessary at his domicile by attachment and garnishment of the funds in the hands of the collecting bank. But the relation of debtor and creditor between a consignor or his assignee and the collecting bank exists under this statute just as under the common law.
Alexander County National Bank v. Conner, 110 Miss. 653, 70 So. 827.
Ford McGehee, of Columbia, and E.B. Patterson, of Monticello, for appellees.
Under our chancery attachment statute, the attachment lien exists from and after the time the property is seized under the attachment proceedings.
Slattery v. Renoult Lumber Co., 125 Miss. 229, 87 So. 888.
While it is true that in a garnishment proceeding property is not seized in the sense that it is taken into the manual possession of the officer by whom the writ is executed, nevertheless, it is to all intents and purposes an attachment, being the process by which money and goods due a judgment or attachment debtor by third persons are attached.
First National Bank of Hattiesburg v. Ellison, 135 Miss. 42, 99 So. 573.
The relation of the garnishee to the parties is well defined by the authorities. He stands as a mere stakeholder, and must not voluntarily do anything to the prejudice of the parties.
Brondum v. Rosenblum, 151 Miss. 91, 117 So. 363.
It is not necessary that one claiming a preference shall trace the identical money and identify it in the hands of the receiver.
Sawyer v. Conner, 75 So. 133; Mitchell v. Bank of Indianola, 98 Miss. 659, 54 So. 87.
The doctrine of the modern authorities is that the trust fund is recoverable where an equal amount in cash remained continuously in the bank until its suspension, and passed to the receiver.
Carlson v. Kies, 47 L.R.A. (N.S.) 317.
The Bank of Monticello itself recognized that the relation of the debtor and creditor which arose between itself and the appellee, as the owner of the draft, when the said bank collected the proceeds thereof, was immediately changed by the levy of the attachment and that the fund was thereby converted into a special deposit to be held by the bank subject to the rights of the attaching creditor and to abide the further order of the court.
The Bank of Monticello having agreed with both the litigants and the court that it was holding the said cash and securities in its custody and possession pending the order and direction of the court. The said bank thereby agreed to recognize the said fund as a special deposit pending the orders and directions of the court in the litigation between the attaching creditor and the nonresident defendant, Fulton Iron Works Company, appellee herein.
A garnishee is regarded as an innocent person owing money to or having in his possession property of another, without fault or blame, and he is supposed to stand indifferent as to who shall have the money or property. The garnishee, in the eye of the law, is a mere stakeholder, a custodian of property or estate attached in his hands and has no right to any voluntary act to the prejudice of either the plaintiff or defendant in the action. He must let the law take its course, except that he may protect himself from jeopardy or injury by unauthorized acts and proceedings. It may be said that the effect of service upon the garnishee is to impound the funds in his hands. The garnishee must not, after service, be guilty of any act which will prejudice the rights of the garnishing creditor.
12 R.C.L. 850.
The levy of the attachment placed the funds in custodia legis, and extinguished the obligation of the collecting bank to make remittance to the forwarder of the draft, but converted the fund into a special deposit and imposed upon the collecting bank the duty to hold the same subject to the rights of the attaching creditor and to abide the orders of the court.
The bank of Monticello became insolvent and was taken over, and its affairs were being liquidated, by the appellant as superintendent of banks. The appellee filed a petition in the liquidation proceeding setting forth that the bank had in its possession money belonging to it, and praying that it be given a preference therefor in the distribution of the bank's assets. This preference was granted by the court below.
The appellee, doing business in St. Louis Missouri, sold to the T.E. Stephenson Sand Gravel Company of Monticello, Mississippi, certain machinery for seven thousand two hundred thirty-four dollars, of which two thousand seven hundred seventeen dollars was to be paid in cash and the balance to be evidenced by promissory notes. The machinery was shipped by the appellee to Monticello consigned to its own order. It attached to the bill of lading therefor a draft on T.E. Stephenson Sand Gravel Company for two thousand seven hundred seventeen dollars and deposited it in a bank for collection, the bill of lading to be delivered to the Stephenson Company on payment of the draft and execution of the promissory notes for the deferred payments on the machinery. The draft and accompanying papers were forwarded by the depository bank to the Bank of Monticello for collection, which bank collected the draft, obtained the signature of the Stephenson Company to the notes, and delivered to it the bill of lading for the machinery. Thereafter and before the expiration of the ninety-six hours during which the bank was prohibited from remitting to cover the collection, under section 7106, Code 1930, the Stephenson Company sued out an attachment in chancery, under section 173, Code 1930, against the bank and the appellee. While this suit was pending, the bank became insolvent and was taken over by the state banking department. A bond was executed by the appellee, and, by agreement, a decree was rendered in the attachment suit discharging the bank from liability therein, and permitting it, or rather the appellant who had been substituted as defendant in the attachment suit in the bank's place, to account to the appellee for the money collected on the draft.
A petition was then filed by the appellee setting up the foregoing facts, and alleging that the Bank of Monticello simply acted as its agent in collecting the draft and held the proceeds thereof in trust for it.
When the Bank of Monticello collected the draft, the relation of principal and agent which had theretofore existed between it and the appellee, or rather the bank with which the appellee had deposited the draft for collection, and which had forwarded it to the Bank of Monticello, ceased, and the Bank of Monticello thereupon became the debtor of the forwarding bank, or of its principal, the appellee — which of them is of no consequence as no point is made thereon. Love v. Federal Land Bank, 157 Miss. 52, 127 So. 720.
But it is said by counsel for the appellee that because of section 7106, Code 1930, which prohibited the Bank of Monticello from remitting the proceeds of the draft for ninety-six hours, and the attachment in chancery thereafter begun by the Stephenson Company under section 173, Code 1930, the relation of the Bank of Monticello to the appellee was changed from that of debtor and creditor, and the bank becomes a trustee of the money, charged with the duty of disposing of it in accordance with a decree of the court in the attachment suit.
In this, counsel are in error. Neither the first-mentioned statute, nor the attachment suit, changed the relation existing between the Bank of Monticello and the appellee. They simply prevented it from paying its debt to the appellee, until released from the attachment lien, except at its peril. Alexander County National Bank v. Conner, 110 Miss. 653, 70 So. 827.
The answer of the Bank of Monticello in the attachment suit admits that "it has in its possession the cash . . . as alleged in said bill of complaint," and in the appellee's petition for a preference, it is said that the bill of complaint in the attachment suit alleged that this money was being held by the Bank of Monticello as the property of the appellee herein. This, it is argued, constitutes an admission by the bank that it was not the debtor of the appellee, but simply had in its possession money belonging to, and which it was holding in trust for it.
What the bank did in the attachment suit, without the appellee's participation therein, could, in no way, change the relation that existed between them with reference to this money. The law fixed that relation as debtor and creditor, which relation could be changed only by agreement of the parties either express or implied.
The decree of the court below will be reversed, and the petition dismissed.
Reversed and dismissed.