Leach v. Mechanics Savings Bank

De Grape, C. J. Two primary questions ■ are propounded on this appeal. First: Does a draft drawn in the ordinary form constitute an- assignment pro tanto, in law or in equity, of the funds in the hands of the drawee to the credit of the drawer before the acceptance or certification of such draft? Second: Do the record facts, other than the mere execution and delivery of the drafts .involved in this action, disclose and constitute an assignment of the funds in question so that a court of equity will recognize the holder’s claim as superior to that of the receiver of the drawer, appointed after the issuance of the drafts, but before their presentation to the drawee? The first question calls for the interpretation of Sections 127 and 189 of the Uniform Negotiable Instruments Act, adopted by the legislature of Iowa in 1902 (Sections 9588 and 9650, Code of 1924). The second question must be answered on the fact side of the instant case. If the first question is answered in the affirmative, then there is no occasion to direct our inquiry to the second question. The instant facts are undisputed, and the issues are within narrow compass. The parties in suit are well defined, and involve only the claimants, who are payees in certain drafts, and the drawer, now represented by a receiver, whose rights, it may be conceded, are no higher or better than those of the *901 drawer, the Mechanics Savings Bank. The dispute is to the title to a fund, and is simmered down to a controversy between the payee-holders of the drafts and the drawer thereof. In brief, the inquiry is: Does the provision of the Negotiable Instruments Law of Iowa, in the absence of special or exceptional facts or circumstances evidencing an assignment, foreclose the equity asserted and claimed by the appellants (holders) herein? To make more understandable the legal principles hereinafter discussed, it is necessary at this point to outline the record facts. The Mechanics Savings Bank was a banking corporation organized under the laws of the state of Iowa, doing business in- the city of Des Moines. On the 3d of February, 1925, the appellee Leach, state superintendent of banking, was appointed receiver for said bank, though he had been in possession of the affairs of said bank, in his official capacity as such supei’intend-ent, since the morning of December 30, 1924, when the bank suspended. On the 30th day of December, 1924, both the IoAva National Bank and the Mechanics Savings Bank cleared through the Dos Moines clearing house, and there was found due the Iowa National Bank upon said clearance the sum of $7,851.51, for which, on the same day, the Mechanics Savings Bank issued a draft drawn on the Union Trust Company of Chicago, in words and figures as follows: , “Mechanics Savings Bank 33-21 “No. 37484 “Des Moines, la., Dec. 30, 1924. “Pay to the “Order of' Iowa National Bank $7851.51. £ ‘ Seventy Eight Hundred Fifty-one Dollars Fifty-one Cents “To Union Trust Company, “2-9 Chicago, Ill. Chas. Marcellus, “Cashier.” On the same day, the Iowa National Bank sent said draft for collection to the Continental & Commercial. National Bank of Chicago, which bank immediately presented it to the Union Trust Company of Chicago. Payment was refused on the ground that said Mechanics Savings Bank had closed its doors and ceased to do active business. At the time the said draft *902 was so presented, tbe Mechanics Savings Bank bad upon deposit in said Union Trust Company, after allowing all credits and sums due said trust company from the Mechanics Savings Bank, and all proper set-offs, funds more than sufficient to pay said draft. In said clearance, the said draft was issued in lieu of checks drawn by customers of the Mechanics Savings Bank, and each of said customers thereof had on deposit in said Mechanics Saving's Bank, funds more than sufficient to pay their various checks. The Mechanics Savings Bank charged these cheeks to the respective depositors’ accounts. The Iowa National Bank asks that its claim be allowed as preferred against the receiver, and that it be given priority over the claims of all creditors to said fund in the hands of the Union Trust Company, and, alternatively, that it be subrogated to the rights of the drawers of said checks on the Mechanics Savings Bank so cleared, and that it have preference as a depositor. The McCutchen & Standring Company's claim grew out of the following facts: Being a depositor of the Mechanics Savings Bank, it drew, on the 18th of December, 1924, its check for $23.50, for the purpose of purchasing New York exchange; whereupon the bank issued a draft for that amount on the Mechanics & Metals National Bank of New York. On the 29th of December, 1924, the McCutchen & Standring Company drew another check for $640.48, with which to purchase New York exchange, and received a draft on that date for said amount, drawn on the same New York bank. The checks thus issued by the McCutchen & Standring Company were charged to its checking account with the Mechanics Savings Bank, which was in excess of the amount of said checks. The two drafts thus purchased were forwarded to the customers of the McCufeiien & Standring Company, and in due time were presented to the Mechanics & Metals National Bank of New York, where payment was refused, on the ground that- the Mechanics & Metals Bank had been notified by Leach, the receiver, that the Mechanics Savings Bank had been closed. There were more than sufficient funds in the Mechanics & Metals Bank to pay said drafts and all set-offs and counterclaims of the Mechanics & Metals National Bank against the Mechanics Savings Bank. As to the claim of the Commercial Savings Bank (which bank is now also in the hands of a receiver), it appears that, *903 iu clearance between the Mechanics Savings Bank and the Commercial Savings Bank through the Pes Moines clearing house, there was a balance due the Commercial Savings Bank of $11,046.87. The cheeks turned over by the Commercial Savings Bank to the Mechanics Savings Bank Avere the checks of customers of the Mechanics Savings Bank, all of Avhich Avere good, and charged to the accounts of the respective draAvers of the checks. For the payment thus found due, the Mechanics Savings Bank issued to the Commercial •Savings Bank a draft or cheek on the Union Trust Company of Chicago for the aforesaid amount. On presentation of this draft to the Union Trust Company, payment was. refused, although there Avere more than sufficient funds belonging to the Mechanics Savings Bank on deposit Avit-h the Union Trust Company to pay this draft and all other outstanding drafts, over and aboAre all set-offs and claims of any kind held by the Union Trust Company against the Mechanics Savings Bank. Plaintiff-appellee, on his appointment as receiver, withdreAv and received from the Union Trust Company the amount of the deposit of the Mechanics Savings Bank, which was, in amount, in excess of all outstanding drafts issued by the Mechanics Ravings Bank on the Union Trust Company. The foregoing facts are admitted of record, and it is further stipulated that, at the time of drawing these drafts, the Mechanics Savings Bank credited said drafts on its books to the account of the Union Trust Company, and debited itself for the amount of said drafts; that none of said drafts nor any part thereof has been paid; that checks for which said drafts were, issued, were immediately charged to the respective accounts of the customers, and that there were sufficient funds on hand to the credit of the various customers to meet the various checks; that said drafts. Avhen issued, were good, and continued good, and would have been paid, but for the reason that, immediately upon the appointment of the receiver, the superintendent of banking notified the drawee banks, and stopped payment of the drafts. Generally, it may be said that, on the morning of December 30, 1924, the Mechanics Savings Bank suspended business, and AAras immediately taken over by the state superintendent of banking, Avho thereupon telegraphed the Union Trust Company of Chicago and the Mechanics & Metals Bank of New York of *904 sucli suspension, and directed that no cheeks or drafts drawn upon the accounts in the Mechanics Savings Bank be honored. Shortly thereafter, the state superintendent of banking withdrew from the Union Trust Company and the Mechanics & Metals Bank the credit balances existing therein in favor of the Mechanics Savings Bank. I. Does our Negotiable Instruments Act furnish an answer to the first question? The provisions material to our inquiry read as follows: “A check of itself does not operate as an assignment of any ■part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check.” Section 9650, Code of 1924 (Section 189 of the Negotiable Instruments Act). Further: “A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof, and the drawee is not liable on the bill unless and until he accepts the same.” Section 9588, Code of 1924 (Section 127 of the Negotiable Instruments Act). The terms “draft” and “check” are used interchangeably, and courts have uniformly held that drafts are checks, within the ordinary meaning of that term. The only distinguish-iug feature between the two is that in a draft drawer is a bank,. while in the ordinary check the drawer is an individual. Any material distinction, therefore, between these two instruments being waived, it may be said that, prior to the enactment of the Negotiable Instruments Law in this state, this court adopted and followed the minority rule,, that a check or draft operated as an equitable assignment, giving title to the payee of so much of the drawer’s funds on déposit as the amount for which the check was drawn. Roberts v. Austin Corbin & Co., 26 Iowa 315; Kuhnes v. Cahill, 128 Iowa 594; Thomas v. Exchange Bank, 99 Iowa 202; May v. Jones, 87 Iowa 188. This rule was contrary to the numerical weight of judicial authority. 5 Corpus Juris 918, Section 82 (2); McIntyre v. Farmers & Merch. Bank, 115 Mich. 255 (73 N. W. 233); Attorney General v. Continental Life Ins. Co., 71 N. Y. 325; Fourth Street Bank v. Yardley, 165 U. S. 634 (41 L. Ed. 855). It is thus seen that the Uniform Negotiable *905 Instruments Law prescribed a rule in accordance with the weight of judicial authority at common law, that a check or draft of itself does not operate pro tanto as an assignment of the fund on deposit, and the drawee-bank is not liable to the payee until it has accepted or certified the same. We have no inclination at this time to adhere further to the minority rule, in the teeth of the statute. See Kaesemeyer v. Smith, 22 Ida. 1 (123 Pac. 943) ; Boswell v. Citizens Sav. Bank, 123 Ky. 485 (96 S. W. 797); Bowker v. Haight & Freese Co.. 146 Fed. 257; Baltimore & Ohio R. Co. v. First Nat. Bank, 102 Va. 753 (47 S. E. 837); Taylor’s Administrator v. Taylor’s Assignee, 78 Ky. 470; First Nat. Bank v. Hargis Com. Bank & Tr. Co., 170 Ky. 690 (186 S. W. 471); Elyria Sav. & Bank. Co. v. Walker Bin Co., 92 Ohio St. 406 (111 N. E. 147). For a full discussion of the principle and citation of cases see Bran-nan’s Negotiable Instruments Law (4th Ed.) 902 et seq. See, also, 5 Uniform Laws Annotated (Uniform Negotiable Instruments Act) 471, Section 127. It is obvious that the intent and purpose of the Negotiable Instruments Act are to make uniform the law governing commercial paper, and it is expressly recognized by the court of last resort in several of the states that the statutory provisions under discussion have changed the minority rule in this particular. We approve the pronouncement in Clark v. Toronto Bank, 72 Kan. 1 (82 Pac. 582, 2 L. R. A. [N. S.] 83), which reads: “A uniformity of decision in different jurisdictions upon matters of commercial usage is especially to be desired, and the question here presented, being of that character, affords strong argument in favor of a solution that shall be in harmony with the generally prevailing doctrine.” In Kaesemeyer v. Smith, supra, the thought is expressed as follows: “This section of the statute clearly provides that the issuing of the check in no way transfers or assigns to the payee of such check the fund or any part of the fund of the depositor who draws the check, and that the bank is in no way liable to the holder of such check until the bank accepts or certifies the same. ’ ’ In Cook v. Lewis, 172 Ill. App. 518 (1912), it is said: “From what has been stated above, it would seem to be evident that the legislature intended, by this section of the act, *906 to change the rule in Illinois so as to make it conform to the rule which obtains in most of the other states and in England. We are of the opinion that such was and is its -effect * * * Both jurisdictions supra, Idaho and Illinois, held, prior to the adoption of the Negotiable Instruments Law, that a check operated as an assignment pro tanto of the funds in the hands of the drawee-bank. The legislative intent in the enactment of Sections 127 and 189 of the original act was to remove the conflict between the majority and the minority holdings in this particular, and to make clear that thereafter the drawee should not be deemed liable to a holder, as had theretofore been held under the minority rule, at least in those situations where the holder’s claim to be an assignee rested upon the instrument alone. It is suggested by a few courts, for example, Wasgalt v. First Nat. Bank, 117 Minn. 9 (134 N. W. 224), that a check on a bank in which the drawer has funds on deposit subject to check is an assignment of such funds of the drawer to the amount of the check, “which assignment’is complete as between the drawer and payee when the check is given, and complete as between payee or holder and the bank when the cheek is presented for payment.” The notion of assignment, however, within the purview of the Negotiable Instruments Law, is not subject to a piecemeal consideration in this manner, and in commenting on this proposition it is said by Professor Brannan: “It is submitted that this distinction is unsound, and, like Gruenther v. Bank of Monroe, supra [90 Neb. 280 (133 N. W. 402)], another example of the tendency of some courts to take a narrow view of the statute and hark back to the old law of the state.” Brannan’s Negotiable Instruments Law (4th Ed.) 912, Section 189. It may be pertinent to ask what has been our attitude on the provisions of the act in question since its enactment in Iowa, in 1902, as we have had occasion to refer to the “equitable assignment theory” in several decisions. In Bloom v. Winthrop St. Bank, 121 Iowa 101 (1903), the check in question was dated August 4, 1899, and in Kuhnes v. Cahill, 128 Iowa 594, 1905), the check was presented for payment August 12, 1901. It is apparent, therefore, that both decisions were governed by the rule *907 of law announced by this court prior to the adoption of the Negotiable Instruments Act. In Hove v. Stanhope St. Bank, 138 Iowa 39, at 42 (1908), it is said: ‘ ‘ For the purposes o’f this case, however, it may be conceded that, in so far as law actions are concerned, the statute referred to should be held to take the place of previous decisions of this court.” In the Hove case the facts disclose that it was the clear and express intent of the parties (as evidenced, by a separate writing) that an assignment of the fund in the bank was intended, and we discover no legal or equitable reason why such an assignment cannot be made, in the face of the provision of the Negotiable Instruments Law. In Dolph v. Cross, 153 Iowa 289, at 294 (1911), it is said: “This section [3060-al89, Code Supp., 1913] does not cover the situation here presented. The intervener is not relying upon the ‘check of itself.’ He bases his claim, not only upon the check, but upon the further fact that a special deposit was made to meet this very check after the issuance thereof. The bank, having received the deposit for such specific purpose, was bound by the conditions imposed.” The next ease in chronology, McClain & Norvet v. Torkelson, 187 Iowa 202 (1919), has been provocative of much comment in textbook and law journal, and also of explanation in a subsequent decision of this court, Murray v. American Sav. Bank, 197 Iowa 318 (1924). In the Torkelson case, the facts disclose that one Torkelson drew cheeks upon the Forest City National Bank against a general checking account. The Freeborn County State Bank, upon presentation of these cheeks, paid.the same. Torkelson was indebted to the plaintiffs, who garnished the Forest City National Bank. The garnishment process was served after the checks had been paid by the Freeborn Bank, and before the checks reached the drawee-bank. One declaration in the opinion in this case should be, and it is now, overruled, to wit: “We hold that, even in a law action, the statute has not changed the rule as between the drawer, his creditors, and the bank that pays the check.” *908 See, also, El Dorado Nat. Bank v. Butler County St. Bank, 120 Kan. 109 (242 Pac. 475). This statement cannot be reconciled with the statute in question, which expressly provides that a check of itself does not constitute an assignment, and that the drawee is not liable to the holder unless and until it accepts or certifies the check. It is apparent that, before the payment or certification by the drawee, or in the absence of exceptional facts or circumstances negativing1 the power of revocation, the drawer of a check may countermand the order, and since the check of itself is not an assignment of the drawer’s funds, the drawee-bank may recognize with impunity a ‘ ‘ stop-payment order ’ ’ given by the drawer. In the case of In re Estate of Knapp, 197 Iowa 166 (1924), the plaintiff (payee of a check payable ten days after death of maker) sought to establish a claim in probate against the estate of deceased maker. It was held that the claimant was not entitled to recover, for the reason that, under the circumstances, the check did not constitute a completed gift. It was not a valid gift causa mortis, since the delivery of the check was not made in contemplation of death, and it was not a valid gift inter vivos, since “it did not constitute an assignment of the funds in the bank to the credit of the drawer.” See critical note in 8 Minnesota Law Review 546 (May, 1924). In Murray v. American Sav. Bank, 197 Iowa 318 (1924), the facts are rather peculiar and unusual, in that A had on deposit in the bank a certain sum, and was indebted to the bank on a matured note for $500. B was a depositor, and indebted to A. B gave his check on the bank to A, who took this check, together with other money, to the bank, to pay off his note; but on the suggestion of the cashier that he was too busy to attend to the matter at that time, A left, and, on returning to the bank the next morning, found the bank closed, as insolvent. A claimed the right to set off against his indebtedness to the bank not only the amount to his credit in his own account, but also the amount of B’s check. It is pointed out in the opinion that the bank was not liable as an acceptor or certifier, since such a relation would find its basis in writing, and that the check, by virtue of the Negotiable Instruments Statute could not be treated as an assignment against the bank.- The set-off was allowed, however, on the theory that A had made a tender of payment of his debt, *909 which tender, though not in legal money, was not objected to, and was kept good. In making answer to the argument of the appellee that the issuance of a check against a deposit in the drawee-bank is deemed a pro tanto assignment to the amount of the check, it is said: ‘ ‘ That this was the rule in this state, as pronounced in many cases prior to the adoption of the Negotiable Instruments Act, is conceded. These cases are still relied on by the appellee. It is further contended by the appellee that since the adoption of the Negotiable Instruments Act we have adhered to our former precedents, and that the rule is now what it was before, and consequently that a check of itself does operate as an assignment pro tanto of the funds to the credit of the drawer in the drawee bank. ’ ’ The opinion then reviews the decisions of this court since the adoption of the act, and points out the inapplicability of those cases under the facts. In conclusion, therefore, and in answer to the first question presented on this appeal, we hold that the issuance of a draft or check upon a bank does not, in the absence of special facts or circumstances, operate as an assignment pro tanto of the fund against which the instrument is drawn. II. We now inquire whether the record discloses exceptional facts or circumstances to entitle the holder in a court of equity to assert a claim superior to that of the receiver of the insolvent drawer, appointed after the issuance of the drafts in question, but before their presentation to the drawee. It is well established that special facts in a case may take it out of the ordinary rule. Akin v. Jones, 93 Tenn. 353 (25 L. R. A. 523). It is said in Reviere v. Chambliss, 120 Ga. 714 (48 S. E. 122), quoting from Jones v. Glover, 93 Ga. 484: “In order to infer an equitable assignment, such facts or circumstances must appear as would not only raise an equity between the assignor and assignee, but show that. the parties contemplated an immediate change of ownership with respect to the particular fund in question, not a change of ownership when the fund should be collected or realized, but at the time of the transaction relied upon to constitute the assignment. ’ ’ In First Nat. Bank v. Dubuque S. W. R. Co., 52 Iowa 378, *910 it is said that a bill of exchange drawn upon a general fund and not accepted by the drawee does not operate as an assignment, but is evidence to be considered with other circumstances in determining the intention of the parties. See, also, Covert v. Rhodes, 48 Ohio St. 66 (27 N. E. 94). It is clear that Section 189 of the Uniform Negotiable Instruments Act (Section 9650, Code of 1924) does not prevent an assignment by a depositor of his deposit or any part thereof, and such assignment need not be made in formal terms. An action in equity will lie, 'by the payee of a check to whom an assignment of the fund was also given, notwithstanding the provision of Section 189. Hove v. Stanhope St. Bank, supra. The rule is stated in Clark v. Toronto Bank, 72 Kan. 1 (82 Pac. 582), wherein, after due reference to the minority rule, it is said: “Nevertheless, the great weight of authority is to the effect that an unaccepted cheek or draft in the usual form does not, in the absence of exceptional circumstances, amount to an assignment, in law or equity, of any part of the drawer’s deposit [citing cases]. This rule has frequently been enforced in controversies between the holder of a draft and the assignee or receiver of its insolvent drawer [citing cases]. ’ ’ See, also, 7 Corpus Juris 751, Section 547, and page 675, Section 390; First Nat. Bank v. Farmers St. Bank, 120 Kan. 706 (244 Pac. 1039) ; Gellert v. Bank of California, 107 Ore. 162 (214 Pac. 377) ; Spiroplos v. Scandinavian-American Bank, 116 Wash. 491 (199 Pac. 997); 9 Harvard Law Review 428; 12 Ibid. 572; 1 Morse on Banks and Banking (5th Ed.), Section 248. Upon a review of the'decisions in various jurisdictions since the adoption of the Uniform Negotiable Instruments Act, it may be said that, even in the absence of acceptance or certification, the holder of a check or bill may have effective rights against the drawee by virtue of (1) an assignment, (2) a contract for his benefit, (3) a trust for his benefit; and there may be other conditions or special facts giving rise to an equation resulting in the solution of the problem in equity in favor of the holder. We deem it unnecessary to pursue this particular inquiry further; and it is sufficient to state that, although the statute in *911 question indicates that an assignment may be shown by facts and circumstances which evidence a clear intent to assign, such intent cannot be shown by acts which are obviously done in conformity to the usages and rules of the Law Merchant. In each case the inquiry is whether an intention to transfer ownership in the fund has been carried out, so that thereafter the drawer-assignor has no further control over the fund or power of revocation. If the bill or check, plus something else, may be viewed as an assignment, as between the drawer and the payee, clearly, under such circumstances, a court of equity will distribute the fund under its control so that equity will be done. In the case at bar, the act of the drawer-bank in charging 'its customers with the checks drawn on it was just what' is ordinarily done. The-act of the drawer-bank in crediting the amount of the draft to the drawee-bank is what is always done. Beyond these acts the record discloses nothing indicating an intent to assign, except the issuance of the drafts, which per se does not operate as an assignment. With this view of the law applicable to the facts, the decree entered by the trial court is — Affirmed. Evans, Stevens, Favíele, and VeRmilion, JJ., concur. Albert and Morling, JJ., dissent.