Source: https://www.legalcrystal.com/case/96206/jennings-vs-fidelity-guaranty
Timestamp: 2016-12-11 07:13:02
Document Index: 757893900

Matched Legal Cases: ['§ 2', '§ 13', '§ 5236', '§ 2', '§ 9', '§ 155', '§ 1044', '§ 13', '§ 5236', '§ 194']

Jennings Vs United States Fidelity and Guaranty Co - Citation 96206 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Jennings Vs. United States Fidelity and Guaranty Co. - Court Judgment	LegalCrystal Citationlegalcrystal.com/96206CourtUS Supreme CourtDecided OnFeb-04-1935Case Number294 U.S. 216AppellantJenningsRespondentUnited States Fidelity and Guaranty Co.Excerpt:.....national bank act or other federal statutes. p.
294 u. s. 219
2. under § 2 of the bank collection code, as adopted in indiana, the relation between a bank forwarding a check for collection and the collecting bank is that of principal and agent, until the agent has finished the business of collection. p.
3. in the absence of tokens of a contrary intention, the better common law doctrine is that the agency of a collecting bank is brought to an end by the collection of the paper, the bank being from then on in the position of a debtor, with liberty, like debtors generally, to use the proceeds as its own. p.
4. a collecting bank need not collect in cash if another way has the sanction of law or custom to which the..... Judgment:
1. National banks are subject to state laws insofar as these are consistent with the policy and provisions, express or implied, of the National Bank Act or other federal statutes. P.
4. A collecting bank need not collect in cash if another way has the sanction of law or custom to which the parties may be held to have impliedly consented. P.
294 U. S. 220
and thereafter the liability of the bank to the forwarder or owner is that of a debtor. P.
294 U. S. 221
6. A national bank in Indiana became insolvent after collecting a check by a local clearing wherein the check was set off against checks of greater amount owed by the bank itself.
that, in the absence of wrongdoing, there is no ground for impressing the bank's assets with a constructive trust in favor of its principal, and neither is there ground for an implied trust, since the money proceeds of the transaction did not come into the bank as an identifiable fund, but merely went to reduce its liabilities, and to infer that a trust was transferred from the proceeds to an equivalent portion of the bank's cash resources would be without warrant in the intention of the parties. Pp.
7. A debt does not furnish a continuum upon which a trust can be imposed after cancellation or extinguishment has put the debt out of existence. P.
294 U. S. 224
8. As applied to a national bank, § 13 of the Indiana Bank Collection Code, purporting to make the owners of paper which the bank has collected but for which they have not been satisfied, preferred claimants, in the event of the bank's failure, upon all of its assets, irrespective of whether the funds representing their paper call be traced or identified as part of such assets or as intermingled with or converted into other assets of the bank, is inconsistent with the system of equal distribution established by federal law (R.S., § 5236), and is therefore invalid. P.
294 U. S. 225
This action, which was begun in a state court in Indiana and was thereupon removed to a United States district court, was brought by the United States Fidelity & Guaranty Company, payee of the check for $2,196.89, against the collecting bank and Jennings, its receiver, to impress a trust upon the assets to the extent of the proceeds of collection, and for payment accordingly. The District Court held that the payee was entitled to a preference over the general creditors of the insolvent bank, and entered a decree for the face amount of the check with interest.
United States Fidelity & Guaranty Co. v. National Bank of America,
4 F.Supp. 569. Upon appeal to the Circuit Court of Appeals for the Seventh Circuit, the decree was modified as to the interest, and as modified affirmed.
National Bank v. United States Fidelity & Guaranty Co.,
71 F.2d 618. A writ of certiorari brings the case here.
There was in force in Indiana in 1931 a statute known as the Bank Collection Code (Indiana Acts 1929, c. 164 [
]), which is applicable to national banks insofar as it is consistent with the policy or provisions, express or reasonably implied, of the National Bank Act or of other federal acts of paramount authority.
Lewis v. Fidelity & Deposit Co. of Maryland,
292 U. S. 559
292 U. S. 566
First National Bank v. Missouri,
263 U. S. 640
263 U. S. 656
. Under that Code (§ 2), the relation between the forwarding bank and the collecting bank is that of principal and agent until the agent has completed the business of collection. Whether a fiduciary relation continues even afterwards, upon the theory that the proceeds of the collection until remitted to the forwarder are subject to a trust, depends upon the circumstances. In the absence of tokens of a contrary intention, the better doctrine is, where the common law prevails, that the agency of the collecting bank is brought
to an end by the collection of the paper, the bank from then on being in the position of a debtor, with liberty, like debtors generally, to use the proceeds as its own.
Marine Bank v. Fulton County Bank,
Hecker-Jones-Jewell Milling Co. v. Cosmopolitan Trust Co.,
242 Mass. 181, 185, 186, 136 N.E. 333;
Freeman's National Bank v. National Tube-Works,
151 Mass. 413, 418, 24 N.E. 779;
Manufacturers' National Bank v. Continental Bank,
148 Mass. 553, 558, 20 N.E.193;
First National Bank of Richmond v. Wilmington & W. R. Co.,
77 F. 401, 402;
Philadelphia National Bank v. Dowd,
38 F. 172, 183;
Merchants' & Farmers' Bank v. Austin,
48 F. 25, 32. [
Freeman's National Bank v. National Tube-Works, supra.
There is a contention for the respondent that the rule at common law has been modified by statute. We shall consider later on whether the change, if any, is material upon the record now before us.
At the closing of its doors on January 4, 1932, the collecting bank at Gary had finished the business of collection, and had arrived at the stage when it was subject to a duty, either as trustee or as debtor, to make remittance of the proceeds. In the method of collection, there had been no departure from the ruling of this Court in
, that an agent bank is at fault when it accepts anything but cash in the absence of custom or agreement for the acceptance
of a substitute. To preclude the extension of that ruling to collections through a clearinghouse the Bank Collection Code makes provision in § 9 for media of payment that are to be deemed equivalent to currency. There may now be acceptance of a bank draft, or settlement through a clearinghouse in the customary manner, without involving the agent in liability for damages if the draft is dishonored or the credit subsequently revoked. [
] On the other hand, when credit ceases to be provisional, or when the accepted instrument is paid, the collecting bank is liable as debtor, if not otherwise, to the same extent as if payment had been made in cash over the counter. One duty (the duty to collect) is at an end, and another (the duty to remit) has arisen in its place.
equivalent for every other purpose. More particularly, it does not mean that they are equivalent for the purpose of identifying a
to be subjected to a trust. The distinction is made definite by the controversy before us. What happened in the clearinghouse was this, that a check for $2,196.89, due to the collecting bank as agent or fiduciary, was used to cancel or extinguish liability upon a check or checks of equal amount due from it as principal, all with the sanction of statute and with the tacit assent of the forwarder or owner. At the close of the day, there was not a dollar in the treasury of the agent that could be identified as part of the proceeds of collection or as a substitute therefor. If the money had been paid over the counter with the understanding that it was accepted as a special deposit (
Blakey v. Brinson,
286 U. S. 254
286 U. S. 262
People v. City Bank of Rochester,
96 N.Y. 32;
Genesee Wesleyan Seminary v. United States Fidelity & Guaranty Co.,
247 N.Y. 52, 55, 159 N.E. 720), the doctrine of a continuing trust would charge the agent with a duty to set the proceeds of collection apart from other assets, and hold them intact for transmission to the forwarder. Nothing of the kind was done. Nothing of the kind was required or expected to be done. On the contrary, the statute gave notice to the agent that, instead of establishing a trust, it was at liberty to set off what was due to it in one capacity against what was owing by it in another, being liable, however, as debtor when the setoff became final.
We are not concerned at this time with a constructive trust in the strict sense, a trust
which may be fastened upon a wrongdoer irrespective of intention. Pomeroy, Equity Jurisprudence, vol. 1, § 155; vol. 3, §§ 1044, 1046. There was no wrongdoing here, but conduct wholly regular, with the result that any trust existing must be one implied in fact. In that situation, there is no basis for a holding that a trust was transferred
from the proceeds of collection to an equivalent part of the cash resources of the agent, the beneficial interest of the principal being unaffected by the set off.
Cf. Knatchbull v. Hallett,
13 Ch.Div. 696;
Central National Bank v. Insurance Co.,
104 U. S. 68
Schuyler v. Littlefield,
232 U. S. 707
. To draw such an inference, far from promoting intention, would ignore and override it. By a permitted course of dealing, the proceeds of the check, instead of being deposited upon collection in the vaults of the collecting agent, were specifically appropriated to the discharge of other obligations. There was not even a partial or proportionate payment that could have found its way into the vaults, for the balance at the close of the operations of the day was adverse to the collector and in favor of the clearinghouse. These being the facts, there is no room, in our view, for the use of those presumptions that affect the conduct of a wrongdoer who draws upon a mingled fund made up of his own moneys and another's.
Knatchbull v. Hallett, supra; Central National Bank v. Insurance Co., supra.
The presumption collapses when there is neither trust nor wrong.
a trust should be implied. Not only that, but a trust so created will not fail though other dollars may have taken the place of those originally received, for dollars are fungibles, and any one of them will be accepted as a substitute for another.
Knatchbull v. Hallett, supra.
But the situation is very different when what has been received by the collecting agent is not a thing at all, but a reduction of liabilities by setoff or release.
Blakey v. Brinson, supra; People v. Merchants' & Mechanics' Bank,
78 N.Y. 269, 272, 273;
Hecker-Jones-Jewell Milling Co. v. Cosmopolitan Trust Co., supra,
242 Mass. 187, 136 N.E. 333;
City Bank v. Blackmore,
75 F. 771;
Anheuser-Busch Brewing Association v. Clayton,
56 F. 759;
Farmers' National Bank v. Pribble,
15 F.2d 175, 176;
Dickson v. First National Bank,
26 F.2d 411;
Schilling v. Rowe,
64 F.2d 188, 190;
Allied Mills v. Horton,
65 F.2d 708, 710;
Smith v. Zemurray,
69 F.2d 5, 6, 7;
First National Bank of St. Petersburg v. City of Miami,
69 F.2d 346;
Wisdom v. Keen,
69 F.2d 349. [
] A debt does not furnish a continuum upon which a trust can be imposed after cancellation or extinguishment has put the debt out of existence.
to be revived is the measure of any benefit accruing to the creditors. Decisions of other courts, to the extent that they give support for a different conclusion, are built, as we think, upon an inadequate analysis, and do not win our approval. [
] It is the benefit to the creditors, not the loss to the respondent, that marks the gain to the fund now held by the receiver. If the respondent is permitted to prove against the assets on a parity with other creditors, the share thus allotted will correspond accurately to whatever accretion has resulted from the act of set off and cancellation in the operations of the clearinghouse.
One other section of the Bank Collection Code is still to be considered. This is § 13, which has to do, as its caption indicates, with the procedure following insolvency. What is regulated in that section is not the relation between a bank and its correspondents during the normal course of business. What is regulated is the relation and the remedy when insolvency has set in and business is suspended. [
] Then for the first time a trust comes into
being through the action of the statute, a trust coextensive in its subject matter with all the assets of the bank, irrespective of their nature, and yet a trust for a special class, the owners of negotiable instruments whose debts remain unsatisfied after payment of the paper has been collected by the agent.
Cf. Spradlin v. Royal Manufacturing Co.,
73 F. 2d 776.
A trust so created, to arise upon insolvency, is a preference under another name. As applied to a national bank, the preference is plainly inconsistent with the system of equal distribution established by the federal law. R.S. § 5236, 12 U.S.C. § 194;
Texas & Pacific R. Co. v. Pottorff,
Lewis v. Fidelity & Deposit Co. of Maryland, supra.
The power of the nation within the field of its legitimate exercise overrides in case of conflict the power of the states.
The decisions to the contrary are criticized in
Hecker-Jones-Jewell Co. v. Cosmopolitan Trust Co., supra,
and additional decisions are collected by Scott, cases on Trusts, pp. 67, 68.
"Where ordinary care is exercised, any agent collecting bank may receive in payment of an item without becoming responsible as debtor therefor, whether presented by mail, through the clearing house or over the counter of the drawee or payor, in lieu of money, either (a) the check or draft of the drawee or payor upon another bank or (b) the check or draft of any other bank upon any bank other than the drawee or payor of the item or (c) such method of settlement as may be customary in a local clearing house or between clearing banks or otherwise:
That whenever such agent collecting bank shall request or accept in payment an unconditional credit which has been given to it on the books of the drawee or payor or on the books of any other bank, such agent collecting bank shall become debtor for such item and shall be responsible therefor as if the proceeds were actually received by it in money."
82 A.L.R. 97.