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455 xuao4 TEDEBAL RESERVE f ( OF BICHMDi© OPINION Sf JQDGE JESSE f , WEST. ?«**€ C WytheviUe, Va., Jane 12, 1924. H. D. PETERS, RECEIVER OP PRINCE ED^AIMUNENBUBG' C U T BANK, and M. E, QBE. O NY CIRCUIT corns OF ItiHEHBtma COUNTY. On and before January $, 1922, the federal Reserve Bank of Richmond w e engaged in the business of banking, as defined in a certain set of Congress known as the Federal Reserve Act. The Prince Zdward-Imnehburg County Batik W S A a State banking corporation engaged in the business of banking at Meherrin, Virginia. The Prince Edward-Iwieriburg County %nk was not a member bank and maintained no deposit account with the federal Reserve Batik of Richmond, and the federal Reserve lank of Richmond maintained no deposit account with the Prince j. IdwardUIaanenburg County Bank, but the federal Reserve Bank of Richmond was authork'' ' - ' ' lied to receive and did receive from various member banks and other persons checks f/ • , • ' - : • • l-jead drafts drawn upon and payable by the Princa Edrnardmloaenburg County Bank. X A order to collect the amount of such drafts, the federal Reserve Barfs of Richmond had agreed with the Prince IHward-fcuneaburg County Bank that a l l such checks and drafts should be sent by the federal Reserve Batik of Richmond, f r a i its office im %Lchmondl,by mail, to the Prince ESbwurd-ltimeriburg County Bank, at i t s office i a Win, Virginiaj and that the Prince Edward-Ieneeburg County Baxfc, i&en the said checks and drafts were received, would present or cease them to be presented to i t s e l f , and would pay such as were good and i t desired to pay, and would return properly protested such as i t was unwilling to pay, and would immediately -2- X-4104 remit the amount of the checks which it paid by means of a shipment of currency or money to the Federal Reserve Bank of Richmond or by means of a draft drawn by the Prince Edward-Lunenburg County Bank upon some other bank with which it had funds upon deposit. The two banks had done business under the above arrangement for some time, and on the 5th day of January, 1922, the Federal Reserve Bank of Richmond sent to the Prince Edward-Lunenburg County Bank a letter containing checks drawn upon the Prince Edward-Lunenburg County Bank to the amount of $2,295-10* The Prince Edward-Lunenburg County Bank received the above mentioned letter on the 6th day of January, 1922. Apparently the drawers of the checks had sufficient balances with the bank to have required it to pay, and the bank had on hand a sufficient sum to have enabled it to have paid the checks had they been presented at i t s counter and cash demanded. The Prince Edward-Lunenburg County Bank accordingly cancelled the checks sent to it by the Federal Reserve Bank of Richmond, and charged them to the accounts of the several drawers of the said checks, and deducted them from the balances of such drawers. The Prince Edward-Lunenburg County Bank thereupon drew in favor of the Federal Reserve Bank of Richmond a draft upon the Bank of Commerce & Trusts, of Richmond, Virginia, for the sum of $2,295*10, and sent i t to the Federal Reserve Bank of Richmond in settlement for the amount which the Prince EdwardLunenburg County Bank had collected upon the checks sent to it by the Federal Reserve Bank of Richmond. This draft was dated and apparently mailed on the 6th day of January, 1922. At that time the Prince Edward-Lunenburg County Bank -3- X-4io4 had. on deposit to i t s credit with the Bank of Commerce & Trusts the approximate amount of $11,000.00. As soon as the said draft was mailed to the Federal Beserve Bank of Richmond and certain other drafts apparently given under like circumstances were mailed to the payees thereof, the Prince Edward-Lunenburg County Bank deducted the amount of the said drafts from its balances with the Bank of Commerce & Trusts and charged the amount of the said drafts to the persons to whom they were payable, just as if cash had actually been withdrawn from the Bank of Commerce & Trusts and delivered to the payees of the several drafts. The said draft for $2,295*10 was received by the Federal Reserve Bank of Richmond in due course of mail and was presented by i t to the Bank of Commerce & Trusts and demand was made for the payment. Payment was refused because in the meantime a receiver had been appointed for the Prince Edward-Lunen^ burg County Bank by a decree entered by the judge of the Circuit Court of Iiunenburg County. At the time the said draft was so presented the said Bank of Commerce & Trusts had in i t s hands the sum of approximately $11,000 payable to the order of the Prince Edward-Lunenburg County Bank, but it refused to pay this sum to the Federal Reserve Bank because of the fact that a receiver had been appointed, and the said sum has since been paid over to the receiver in this cause. Prior to the closing of the Prince Edward-Luneriburg County Bank, the Federal Reserve Bank of Richmond had been directed by the Secretary of the Treasury of the United States to make for the public, through a branch which the Federal Reserve Bank of Richmond maintains in the city of Baltimore, ex- -4- X-4104 changes of different kinds of United States coin and currency for other kinds of coin and currency, and it had accordingly issued a circular addressed to all the banks in the Fifth Federal Reserve District, in which the Federal Reserve Bank of Richmond did business, stating that it was ready and willing to exchange any kind of United States coin and currency for any other kind of coin and currency for which it might properly be exchangeable, provided the persons shipping the coin and currency for exchange would pay the cost of such shipment * On the 6th day of January, 1922, the Prince Edward-Lunenburg County Bank shipped to the Federal Reserve Bank of Richmond, at its Baltimore branch, the sum of $^10»82 in five cent and one cent pieces of United States coin* At the time that this shipment was made the Prince Edward-Lunenburg County Bank requested the Federal Reserve Bank of Richmond to send to the Prince Edward-Lunenburg County Bank a check in settlement for the amount of coin so shipped* The amount due for said shipment, after deducting express charges, was $505*^5* but the check requested by the Prince Edward-Lunenburg County Bank was not sent because before the coin could be counted and the check prepared and sent, the Federal Reserve Bank of Richmond was informed that the Prince Edward-Lunenburg County Bank had been placed in the hands of a receiver. In due time the Federal Reserve Bank of Richmond presented its claim to the commissioner to whom this cause was referred, and contended that the Prince Edward-Lunenburg County Bank was its agent for the purpose of transmitting to it the money collected upon the several checks sent to it by the Federal Reserve Bank of Richmond, and that by reason of the fiduciary relationship of the Prince Edward-Lunenburg County Bank the cash in its vault was impressed -5- X—4lo4 with a trust in favor of the Federal Reserve Bank of Richmond, or that the cash in the Bank of Commerce & Trusts, against which the draft sent to the Federal Reserve Bank of Richmond was drawn, was impressed with a trust. The said Federal Reserve Bank of Richmond further admitted that it held in i t s hands the sum of $505.1+5, which should in a settlement of its account "between itself and the receiver be properly a credit upon the amount due by the said failed bank to i t . The commissioner to whom this cause was referred sustained the contention of the Federal Reserve Bank of Richmond, and reported that it was entitled to receive payment in full out of the cash in the hands of the receiver, or out of the funds in the Bank of Commerce & Trusts. Inapt time Crag C. Eatchett, by his attorney, filed in the Circuit Court of Lunenburg County his petition alleging that he was a depositor of the failed bank, and, therefore, interested in the administration of its estate, and further asking that he be allowed to become a party defendant to the claim of the Federal Reserve Bank of Richmond and to object and to make exceptions to certain portions of the report of Commissioner Nelson including the portion which determined that the Federal Reserve Bank of Richmond was entitled to a secured or preferred claim. Thereupon, the Federal Reserve Bank of Richmond filed in court i t s petition, alleging in substance the above mentioned facts, and praying that the report of Commissioner Nelson be approved and confirmed so far as i t dealt with its claim. Further evidence was taken by both Crag C. Hatchett and the Federal Reserve Bank of Richmond, but no specific conflicts of testimony appeared from such evidence. —— b X—4ioU The foregoing statement of facts, taken from the petition, is sustained by the record* Upon the final hearing the court entered a decree denying the claims of the Federal Reserve Bank of Richmond to a preference, establishing its claim as anunpreferred debt for $2,2Q5.10, adjudging that it is not entitled to set off against the indebtedness due it by the Prince Edward—Lunenburg County Bank the sum of $505*^5, referred to in the petition, and directing the Federal Reserve Bank to pay the same to the receiver of the Prince Edward-Luneriburg County Bank* The case is before us upon an appeal from that decree* The appellant assigns as error the action of the court: First: In denying the claim of petitioner to be a lien upon the cash which was in the vault of the Prince Edward-Lunenburg County Bank at the time that the receiver took charge and in refusing to direct that so much of such cash as was necessary to pay in full the claim of petitioner should be paid over to i t . Second: In denying the claim of petitioner to be an equitable lien upon the deposit of the Prince Edward-Lunenburg County Bank in the Bank of Commerce & Trusts, and in refusing to direct the receiver to pay over to petitioner from such funds a sum sufficient to pay i t s claim in full* Third: In adjudging that the Federal Reserve Bank of Richmond was not entitled to apply on the indebtedness due i t by the Prince E&ward-Luneriburg County Bank, the sum of $505*45, and in requiring and directing the Federal Reserve Bank of Richmond to pay the same to the receiver• -7- X-4104 In order to make collections of checks handled by them, banks usually adopt one of two methods - - reciprocal accounts, or remittance * Under the reciprocal accounts method, the collecting bank, upon receipt of payment of the checks, gives credit upon i t s books to the forwarding bank, and the forwarding bank charges the collecting bank upon its books. They settle.- from time to time according as the balance accumulates, with the one or the other* Under this method, as soon as the collection is made the relation of the banks is that of creditor and debtor» Under the remittance method the forwarding bank sends the checks to the collecting bank with instructions to collect them and remit immediately* The collecting bank is not authorised to retain the proceeds in its hands and therefore acts only as an agent for the forwarding bank* It is manifest that the remittance method was the one used by the Federal Reserve Bank of Richmond in the instant case.*. The first two assignments of error involve the question, whether the facts disclosed by the record are such as to create a trust relation which gave to the Federal Reserve Bank of Richmond a lien upon the assets of the failed bank, before and after they passed into the hands of the receiver* When a bank receives from its correspondent a check upon i t s e l f , it is an agent for its correspondent to make a presentation to i t s e l f . Hilsinger v* Trickett, 36 Ohio St, 2g6; Ann* Cas. I9I3-D, p. 421. The agreement between the two banks constituted the Prince Edward- . Lunenburg County Bank a special agent to collect and remit immediately the proceeds of the checks enclosed, either in currency or by draft on some other bank. When the checks were cashed, the $2,295*10 realized thereby became the -S- X-4104 property of the Federal Reserve Bank of Richmond, in the hands of the Prince Edward-Lunenburg County Bank a.a its trustee. The trustee had the right to with- draw the money from its bank in currency and ship it to the Federal Reserve Bank of Richmond,, in which event no controversy would have arisen. The fact that i t retained the actual cash, thus permitting the same to temporarily mingle with its general funds, and sent the Federal Reserve Bank of Richmond a draft upon its deposit in the Bank of Commerce & Trusts, did not, however, cause the relation of debtor and creditor to arise, but the general deposit was thereby impressed with a trust# • The relation of principal and agent, which it is admitted obtained between the parties at the beginning of the transaction, did not change to that of debtor and creditor. The authority expressly given the Prince Edward-Lunenburg County Bank was to collect the checks and remit immediately by means of a shipment of currency to the Federal Reserve Bank of Richmond, or by means of draft drawn by the Prince Edward-Lunenburg County Bank upon some other bank with which they had funds upon deposit- An authority to do a specific thing authorizes by implica- tion the doing of whatever is necessary to accomplish the thing authorized, but not the doing of another and separate thing* lect and remit at once. The authority granted was to col- The authority now sought to be added by implication is to destroy, by the mere cashing of the checks, the relation of principal and agent and to substitute therefor the relation of debtor and creditor* It is clear that this change of relation was not necessary to carry into effect the authority granted. Besides, the mingling of trust money with that of the trustee does not defeat the owner * s t i t l e , simply because there is no way to identify -9- X-4lo4 money. The general assets "being increased by the amount of the money attempted to be converted., it is equitable and just that the general assets should bear the burden of the preference. W cannot agree with the contention of appellee that a commingling e of the proceeds of the checks with the funds of the collecting banks brings about the relation of debtor and creditor. Where the relation of trustee and cestui que trust is established the mingling of the trust fund with the general fund in the hands of the trustee does not destroy the trust, but serves to extend the trust or lien to the w hole mass of money. In the recent case of Board of Supervisors v. Prince Edward-Lunenburg County Bank. 138 Va. , 3^ ?a. App. 335, this court quoted with ap- proval from Knatchbull v. Hallett, (L, R. 13 Ch. Div. 696, 707), where Sir George Jessel, Master of the Rolls, says: " . . Supposing, instead of being invested in the purchase of land or goods, the money were simply mixed with other moneys of the trustee, using the term . . in its full sense, as indicating every person in a fiduciary capacity. Does it make any difference, according to the modern doctrine of equity? do so. I say, none. It would be very remarkable if it were to Supposing the trust money was 1000 sovereigns, and the trustee put them into a bag, and by mistake or accident, or otherwise, dropped a sovereign of his own into the bag. Could anybody suppose that a judge, in eq uity, would find any difficulty in saying that the cestui que trust has a right to take 1000 sovereigns on the 1001 sovereigns, but that is the effect of i t . doubt of it." I have no -10- x-4104 Upon the question of whether the relationship existing between banks in such cases is that of debtor and creditor or that of trustee and cestui que trust, the authorities are in sharp conflict, but we feel that the better reason and weight of authority support the views expressed herein. It appears from the record that as soon as the draft was sent to the Federal Reserve Bank of Richmond the cashier of the Prince Edward-Lunenburg County Bank deducted the amount thereof from the apparent balance due from the Bank of Commerce & Trusts upon which the draft was drawn, just as if this amount had already been withdrawn from the latter bank and transferred to the Federal Reserve Bank of Richmond. By this act the cashier intended to set apart such a portion of the balance in the Bank of Commerce & Trusts as was necessary to meet the draft sent to the Federal Reserve Bank of Richmond, as he was obligated to do under his contract. Equity regards that as done which ought to have been done* Under such circumstances, the draft on the Bank of Commerce & Trusts was an equitable assignment of the funds to the Federal*Reserve Bank of Richmond, and we will so adjudge. In Messenger v» Carroll Trust & Savings Bank (Iowa), 185 W. 5^5* the Moline Plow Company sent a draft to the Carroll Trust & Savings Bank at Carroll, with the instructions to collect and remit. The draft was drawn on the Swaney Company and was paid by a check on the Carroll Trust & Savings Bank* The court, in the course of i t s opinion, said; "It is the contention for the Moline Plow Company that the relation created between it and the bank was strictly that of principal and agent; whereas, the receiver contends that the trans- -11- X-4l04 action had created the relation of creditor and debtor only. strictly with the directions of the claimant. The bank complied It did not purport to open any account with the claimant, nor to deposit the proceeds to the credit of the claimant. It simply put such proceeds in the form of its own draft upon the Chicago Bank for the purpose of remittance. The case at this point is ruled squarely by Brown v. Sheldon State Bank. 139 Iowa S3> 117 N. W 289, « our previous cases cited therein. an< * by The question is fully discussed in the Brown case, and nothing can be gained by a repetition of the discussion here. Follow- ing such case, it must be held that the proceeds of the sight draft came into the hands of the bank as agent for the Moline Plow Company, and that the t i t l e thereto was at all times in the principal and not in the agent." "Vie deem i t clear that the net result of the transaction of payment by the Swaney Company and the receipt thereof by the collecting bank was the same as though the Swaney Company had drawn the currency into i t s own hands by means of check, and had thereupon delivered the same to the collecting bank in payment of the sight draft. Such is the holding of the cited cases." In the case of Goodyear Tire & Robber Company v. Hanover State Bank . 204 Pacific 992, decided by the Supreme Court of Kansas, the Goodyear Tire & Rubber Company of Akron, Ohio, sent a draft to the Hanover State Bank. The draft was drawn upon Poell Bros., who paid it by a check on the Hanover State Bank. The Hanover State Bank failed before remitting the amount of the draft to the Goodyear Tire & Rubber Company. The court held that the Rubber Company was entitled to impress a trust upon the cash in the hands of the failed bank. In disposing of the case this language was used: - !2 -• X-410U "If Poell Bros., instead, of paying the draft upon them by check, had used currency for the purpose, there can be no doubt that the receiver would hold the amount in trust for the-plaintiff, for the total of the cash, or i t s equivalent, which came into his hands would necessarily, or at all events presumptively, have been that much larger by reason of such payment, The court is of the opinion that the rule applies, that where a payment to a "bank is made by check dram thereon, the result is the same as though the depositor had presented his check, received the money over the counter, and then used i t in making the payment. That rule has often been announced. ffashon v. Bank, 67 iCan. 6$8, 125 Pac. 17; 2 Morse on Banks and Banking (5th ed.) 451, and cases cited in note. " . • It follows from these views that the money belonging to the plaintiff must be regarded as having passed into the hands of the receiver, increasing by that amount the assets to be administered by him, and that the plaintiff is entitled to reclaim i t as a trust fund. " In the case of Keal v Hanover State Bank, 204 Pac. 994, the Kansas court also held that where a check of one - , is sent by mail for collection to the bank on which i t is drawn, which has at the time of i t s receipt, and at all other times thereafter, sufficient cash to meet it, and the bank charges i t to the drawer and at once nails to the owners a draft for the amount, payment of which is prevented by the bank commissioner taking charge of the bank issuing i t , before i t could be presented in due course of business, the owners of the check have a preferred claim for its amount against the assets of the suspended bank. To the same effect' is Kansas State Bank v. First State Bank of Marion, 62 Kan. 788. X-4io4 — 13 — In State v.Edwards, Receiver, 6l Neb- 181, 85 N. W 4-3, the court , said "It is a recognized principle in this State that money collected by a bank for another on notes or drafts is in trust for the owner who is a preferred creditor in case the bank goes into liquidation," In Arnot v. Bingham, 55 Hun. 553, the plaintiff sent to the First National B&nk of Danville a note payable by one of its custerrors at the bank. The customer paid the note by means of a check. charged to the customer's account. The check was cancelled and At the time the customer had to his credit a balance sufficient to pay his check and the bank had cash in i t s vaults sufficient to have paid the check had payment been demanded in cash. In deciding the case, the New York court said: ville "If the receipt by the Dan*, Bank of the maker's check, the cancellation and surrender of the note and deducting the amount of the check from the maker's account was in effect a collection of such check from the general fund, then in the hands of the bank, so that i t was bound to hold the money for the plaintiffs and apply i t to the purpose for which it was collected, then we think that i t was properly held that the funds remaining in the hands of the bank when i t failed, as between the plaintiffs and the bank, or between the plaintiffs and the receiver, equitably belonged to the plaintiffs, as well as the amount collected on the McCullom note. " In State National Bank v. First National Bank of Atchison, 1S7 S. W . 673, the First National Bank of Atchison sent to the State National Bank for collection certain drafts of F. J. Darrag & Company. These drafts were presented to Darrag & Corrpany by the State National Bank, who paid them by • - 14 - • - X-4104 their check on the State National Bank. The State National Bank collected the check of Darrag & Company by charging i t to the account of that firm, on June 15th. O June 19th the State National Bank closed its doors because of insoln vency, without having remitted the amount of the check, but with cash on hand in excess of the amount of the check. of Arkansas held: In deciding the case the Supreme Court "It is likewise well established that a bank receiving a draft for collection merely i s the agent of the remitter, drawer, or forwarding bank and takes no t i t l e to the paper or the proceeds when collected, but holds the same in trust for .-remitting. Second National Bank v. Bank of Aline, 99 Ark. 386; Oklahoma State Banlr. v. Bgnk of Central Arkansas, 179 S. W $09, 3 R. . C. L. 633^ 3 A - & Eng. of Law 816; 5 Cyc. p. 5l4;Msffc.v v. Roedenbeck. 2?7 Fed, m 346." In the course of the opinion the court further said:. "The payment of the drawee of the draft of the amount thereof, by the delivery of i t s check therefor against his account in the collecting bank and the charging of the amount against his account, constituted to all intents and purposes a payment in cash of the drafts; the check being merely the vehicle of transfer of the cash. Certainly there is no necessity for the drawee of the drafts to take i t s check to i t s bank, the collector, and present i t and receive the money and hand it back to the bank in payment of the draft. "The testimony shows that the bank had more money c hand each m day i t continued business, after the collection of the drafts than the amount thereof, and that the lowest amount i t had on hand thereafter, and which went into the hands of the receiver, was more than $7,000 and under the rule - 15 - x-4104 announced by t h i s court i n Cove;/ v. Cannon, 104 Ark. 550, 149 S. W, t h i s showing i s a s u f f i c i e n t i d e n t i f i c a t i o n of the proceeds jf the c o l l e c t e d d r a f t s and tracing them to the possession of the r e c e i v e r . " To the same e f f e c t are: 6 l Neb. 181, 5'd. State v. Bank of Coirmerce, 85 N. W. 43, R. A. 858; Kansas State. Bank v. First State Bank, 64 Pac. 634, b2 Kan. 788; F i r s t national Bank v. Sanford, 62 Mb. App. 39^# and Anheuser Busch Brewing Co. v. Morris, 36 Neb. , 83 N. W. 1037* In Western German Bank v. Norvell, 134 Fed. 7^6, the court held that "wnen a bank r e c e i v e s ma:ey, i t being known to i t s o f f i c e r s to be insolvent, and mingles the money with i t s own funds, which, tc an amount larger than the sum so received from i t s c l i e n t , gcps into the hands of i t a r e c e i v e r , i t i s not e s s e n t i a l t o the r i g h t of i t s c l i e n t to recover from the r e c e i v e r that he should be able t c trace the i d e n t i c a l money i n t o the r e c e i v e r ' s hands; but i t i s s u f f i c i e n t to shew that the sum which went i n t o the r e c e i v e r ' s hands was increased by the amount which the bank received of i t s c l i e n t . Richardson v. New Orleans Rid. Co., 102 Fed. 42, C. C. A. 6 l 9 , 52 L. R. A. 67, and cases cited." In the c a s e of In re City Bank of Dowagiac, 186 Fed, 250, the bank c o l l e c t e d $500'upon a draft sent i t by the Harris Bank. I t intermingled the actual money r e c e i v e d with i t s general funds and used i t to pay c e r t a i n debts other than i t s o b l i g a t i o n s to the Harris Bank, but i t drew a g a i n s t i t s account with i t s New York correspondent a draft in favor of the Harris Bank for t h e proceeds of the c o l l e c t i o n . The Dowagiac Bank f a i l e d b e f o r e t h i s remit- tance d r a f t was presented, or c o l l e c t e d , having a balance with i t s New York c o r r e s p o n d e n t more than equal to the outstanding d r a f t payable t o the Harris Bank. The court s t a t e d the law thus: - 16 - X-4104 "It i s clear beyond dispute that Nelson i s not a general creditor, "but that this money, when received by the City Bank, was a trust fund, belonging to Kelson; and the only question in controversy i s the s e l e c t i o n of the property to which Nelson's l i e n attaches. The r e f e r e e gave him a l i e n only upon the general balance of cash on hand i n the vaults of the bank, at Dowagiac, when i t closed; and, as this amount was only $495> an(i there are a large number of other preferred claims against the same fund, Nelson w i l l r e c e i v e , from t h i s l i e n , nothing of consequence. He appeals from the disallowance of h i s claim as a l i e n against the fund in the National City Bank of New York on February Sth, and since transferred to the trustee. "I think this l a t t e r l i e n should be allowed. % understanding of the s i t u a t i o n i s that on February 5th, and because of the mingling of t h i s fund, by the City Bank, with i t s general funds, Nelson had a l i e n upon such general funds. This was a f l o a t i n g , i n d e f i n i t e l i e n , and i t could be l o c a l i z e d and made s p e c i f i c , either by Nelson's act in seizing s u f f i c i e n t of such funds to s a t i s f y i t , or by the act of the City Bank in appropriating s u f f i c i e n t of such funds for that purpose, in which appropriation Nelson, or those representing him, should join or acquiesce. Such s p e c i f i c appropriation was made by the City Bank, when i t drew i t s draft for that purpose against i t s New York depositary, and had already furnished, or then did furnish, to such depositary, funds s u f f i c i e n t to meet this draft. I think this appropriation of a fund for t h i s purpose, followed by Nelson's use of the draft and demand for the fund so appropriated, established and f i x e d the lien for $499-50 against such fund, and the trustee should pay to Nelson this amount, unless there are other conf l i c t i n g l i e n s against the same fund." X-4104 - 17 - Both c o u n s e l f o r a p p e l l a n t and a p p e l l e e r e l y upon t h e c a s e of F i r s t R a t i o n a l Bank of A l e x a n d r i a v . P a y n e , 8$ Va. 8 g 0 . The F i r s t N a t i o n a l Bank s e n t Payne & Company, p r i v a t e b a n k e r s doing b u s i n e s s i n W a r r e n t o n , V a . , a l e t t e r c o n t a i n i n g c h e c k s drawn by v a r i o u s d e p o s i t o r s i n Payne & Company upon t h a t b a n k i n g f i r m a n d r e q u e s t e d Payne & Coirpany t o c r e d i t t h e a c c o u n t of the F i r s t N a t i o n a l Bank of A l e x a n d r i a w i t h t h e p r o c e e d s of t h e c h e c k s . A clerk i n t h e o f f i c e of Payne & Company a c c o r d i n g l y c a n c e l l e d t h e c h e c k s and c h a r g e d them t o t h e a c c o u n t s of t h e d e p o s i t o r s and c r e d i t e d t h e amount of t h e c h e c k s t o t h e F i r s t N a t i o n a l Bank of A l e x a n d r i a . On t h e day upon w h i c h t h e l e t t e r was r e c e i v e d by Payne & Company and t h e above m e n t i o n e d e n t r i e s made i n t h e a c c o u n t s , Payne & Company were d i s s o l v e d by t h e d e a t h of one of i t s p a r t n e r s . The p r o c e e d s of t h e c h e c k s r e c e i v e d were n e v e r p a i d over t o t h e F i r s t N a t i o n a l Bank of A l e x a n d r i a , and i t was d i s c o v e r e d t h a t t h e f i r m was i n s o l v e n t and an a s s i g n m e n t was made f c r t h e b e n e f i t of i t s c r e d i t o r s . The A l e x a n d r i a b a n k f i l e d a p e t i t i o n p r a y i n g t h a t t h e e n t i r e amount of t h e c h e c k s s e n t by i t t o Payne & Company b e p a i d over t o i t upon t h e t h e o r y t h a t t h e p r o c e e d s of t h e c h e c k s were a t r u s t f u n d which d i d n o t p a s s t o t h e a s s i g n e e . The c o u r t s u s - t a i n e d t h i s c o n t e n t i o n and o r d e r e d t h a t t h e f u l l amount of t h e c l a i m o f t h e F i r ^ t N a t i o n a l Bank of A l e x a n d r i a b e p a i d . T h i s was c l e a r l y a c a s e of r e c i p r o c a l a c c o u n t s , and b u t f o r t h e d i s s o l u t i o n of t h e f i r m of Payne & Company by t h e d e a t h of one of t h e p a r t n e r s , t h e p r o c e e d s of t h e checks would have p a s s e d t o t h e a s s i g n e e , a n d t h e p o s i t i o n of t h e F i r s t N a t i o n a l Bank of A l e x a n d r i a would h a v e been t h a t of a g e n e r a l creditor. Upon t h e f i r m ' s d i s s o l u t i o n , however, t h e s u r v i v i n g p a r t n e r was w i t h o u t a u t h o r i t y t o make t h e f i r m a d e b t o r t o a n y one, and h i s a c t i o n i n — IS — - x-4lo4 c r e d i t i n g t h e a c c o u n t of t h e F i r s t N a t i o n a l Bank of A l e x a n d r i a w i t h t h e p r o c e e d s of t h e c h e c k s was a n u l l i t y . The c h e c k s had been c o l l e c t e d b u t the p r o c e e d s were t h e p r o p e r t y of t h e A l e x a n d r i a bank and h a v i n g been a c t u a l l y b u t wrongly t u r n e d over t o t h e a s s i g n e e , .the c o u r t p r o p e r l y o r d e r e d t h e same p a i d over t o t h e F i r s t N a t i o n a l Bank of A l e x a n d r i a , f o r whom i t had been c o l l e c t e d * The Payne c a s e i s a u t h o r i t y f o r t h e p r o p o s i t i o n t h a t wherever t h e r e l a t i o n of c r e d i t o r and d e b t o r does n o t e x i s t , t h e m i n g l i n g of t h e f u n d s of t h e f o r w a r d i n g bank w i t h t h e g e n e r a l f u n d s of t h e c o l l e c t i n g bank w i l l n o t d e f e a t t h e r i g h t of t h e f o r w a r d i n g b a n k t o c o l l e c t t h e amount due i t out of such g e n e r a l f u n d s » The a p p e l l e e r e l i e s a l s o upon two o t h e r V i r g i n i a c a s e s : P e n n i n g t o n , R e c e i v e r v. T h i r d N a t i o n a l Bank of Columbus, G a . . I l 4 Va. S?4, a n d M i l l e r v . N o r t o n & Smith, l l 4 Va, 609. The P e n n i n g t o n c a s e r e s e m b l e s , i n some r e s p e c t s , t h e i n s t a n t c a s e I t i s t r u e t h a t t h e c o u r t , a l t h o u g h n o t n e c e s s a r y to t h e d e c i s i o n of the case, l a i d down t h e g e n e r a l r u l e , t h a t "tile c o l l e c t i o n of a d r a f t by a b a n k f o r a customer i n t h e o r d i n a r y c o u r s e of b u s i n e s s ( i t a l i c s o u r s ) , and p l a c e d t o the c u s t o m e r ' s c r e d i t , amounts t o a g e n e r a l d e p o s i t by t h e l a t t e r , and c r e a t e s t h e r e l a t i o n of d e b t o r and c r e d i t o r between them." But t h e c o u r t a l s o h e l d t h a t t h e Tarooro bank, which f a i l e d , and had c o l l e c t e d a d r a f t s e n t i t "for col- l e c t i o n and r e t u r n , r e m i t t o N a t i o n a l P a r k Bank, New York, f o r our c r e d i t a n d a d v i s e " , and m i n g l e d t h e p r o c e e d s w i t h i t s g e n e r a l f u n d s , was a t r u s t e e and t h a t the g e n e r a l d e p o s i t b a l a n c e of t h a t bank i n t h e hands of t h e N o r f o l k c o r r e s p o n d e n t was i m p r e s s e d w i t h a t r u s t . I f , a s we h o l d , t h e r e l a t i o n s h i p of d e b t o r and c r e d i t o r n e v e r a r o s e i n t h e c a s e a t b a r , then we f i n d n o t h i n g i n the Pennington c a s e t o s u s t a i n the c o n t e n t i o n of t h e a p p e l l e e . x-Uio4 .^ "-19-' I t i s t r u e t h a t t h e t r u s t was e s t a b l i s h e d , on t h e ground, of t h e i n s o l v e n c y of t h e c o l l e c t i n g bank, known to i t s e x e c u t i v e o f f i c e r s a t t h e time when t h e c o l l e c t i o n was r e c e i v e d , b u t i t d e e s n o t f o l l o w t h a t i f t h e c o l l e c t i o n had been s e n t , a s i n t h e i n s t a n t c a s e , under i n s t r u c t i o n s to r e m i t immediately t h e amount of t h e c h e c k s by shipment of c u r r e n c y , t o t h e f o r w a r d i n g b a n k , or by means of a d r a f t drawn by the c o l l e c t i n g bank u p o n some o t h e r bank w i t h which i t had f u n d s upon d e p o s i t , t h e c o u r t would h a v e h e l d t h a t t h e c o l l e c t i n g b a n k d i d n o t h o l d t h e p r o c e e d s of t h e c h e c k s a s t r u s t e e . The c a s e of M i l l e r v . Norton & Smith. 114 Va, 609, l i k e w i s e f a i l s t o s u s t a i n t h e c o n t e n t i o n of t h e a p p e l l e e . In t h i s c a s e , the c o u r t was d e a l i n g w i t h an i n s o l v e n t f o r w a r d i n g bank and n o t an i n s o l v e n t c o l l e c t i n g b a n k . Unlike the i n s t a n t case, there was no q u e s t i o n of s p e c i a l a g e n c y , and M i l l e r i n t e n d e d a f t e r t h e c h e c k was c o l l e c t e d , to l e t t h e p r o c e e d s remain i n bank a s a g e n e r a l d e p o s i t . question The r e a l i n v o l v e d was whether or n o t b e f o r e :the c o l l e c t i o n was complete t h e f o r w a r d i n g b a n k should be r e g a r d e d a s a h o l d e r of t h e c h e c k f o r v a l u e , or as a nere agent f o r c o l l e c t i o n . The c o u r t h e l d t h a t i t was a n a g e n t b e c a u s e i t h a d n o t g i v e n v a l u e ; and t h a t t h e d e p o s i t when made, b e i n g g e n e r a l , t h e b e n e f i c i a l ownership of t h e money v e s t e d i n t h e b a n k and t h a t t h e r e l a t i o n s h i p between i t and t h e d e p o s i t o r became t h a t of d e b t o r and c r e d i t o r . Among c a s e s f r o m o t h e r j u r i s d i c t i o n s , r e l i e d on by t h e a p p e l l e e s , which do s u s t a i n h i s c o n t e n t i o n , may be mentioned t h e f o l l o w i n g : First N a t i o n a l Bank v . D a v i s . 114 N, C , , 4 l Am. S t - Rep. 795.1 Bur man v . F i r s t - 20 - X-4lC)4 N a t i o n a l Bank, 43 Am* S t . Rep, 870; P e o p l e v . Merchants & Mechanics Bank, JS N, Y. 266; S a y l e s v„ Cox, 49 Am, S t , Rep- 9^0; Akin v< J o n e s , 42 Am. S t . Rep* 921; C e n t r a l T r u s t Co, of 111, v , Hanover T r u s t Co, , ( M a s s . ) , 136 N, E, 336, and o t h e r s , In F i r s t N a t i o n a l Bank v . D a v i s , 114 N. C. 343, 4 l Am. S t . Rep, 795, supra, unlike the i n s t a n t case, and t h e r e c e i v i n g b a n k . t h e r e was no a g r e e m e n t between t h e f o r w a r d i n g New The Bank o f / H a n o v e r was i n t h e h a b i t of r e c e i v i n g f r o m t h e F i r s t N a t i o n a l Bank o f Richmond c h e c k s and o t h e r e v i d e n c e s of i n d e b t e d n e s s f o r c o l l e c t i o n , c h a r g i n g f o r i t s s e r v i c e s a s c o l l e c t i n g a g e n t and r e m i t t i n g d a i l y t h e p r o c e e d s of i t s c o l l e c t i o n s * The money and c h e c k s r e c e i v e d and c o l l e c t e d were n o t k e p t s e p a r a t e , b u t were m i n g l e d t o g e t h e r i n one g e n e r a l f u n d w i t h t h e o t h e r moneys and p r o p e r t y of t h e f a i l e d bank* The c a s h i e r of t h e New Hanover Bank, f o r which D a v i s was a f t e r w a r d s a p p o i n t e d r e c e i v e r , had no knowledge of i t s i n s o l v e n c y u n t i l i t had a c t u a l l y f a i l e d . The c o u r t h e l d t h a t t h e two banks were presumed t o h a v e e n t e r e d i n t o a n i m p l i e d a g r e e m e n t t h a t t h e b u s i n e s s would be t r a n s a c t e d i n a c c o r d a n c e w i t h t h e e s t a b l i s h e d c u s t o m i n such b u s i n e s s , which p e r m i t t e d t h e c o l l e c t i n g bank t o p u t a l l c o l l e c t i o n s made by i t i n t o the g e n e r a l f u n d of t h e b a n k , and u s e them f r o m day t o d a y i n t h e t r a n s a c t i o n of t h e i r c u r r e n t b u s i n e s s , and when t h e t i m e came f o r making r e m i t t a n c e to send t h e f o r w a r d i n g bank money f r o m i t s g e n e r a l f u n d , or i t s c a s h i e r * s c h e c k f o r t h e amount due* The c o u r t a l s o h e l d t h a t t h e r e l a t i o n e x i s t i n g b e t w e e n t h e two banks* up t o t h e t i m e t h e c h e c k s were c a s h e d , was t h a t of p r i n c i p a l and a g e n t , a n d t h a t i m m e d i a t e l y t h e r e a f t e r t h e r e was . s u b s t i t u t e d a s t o such c a s h t h e r e l a t i o n of d e b t o r and c r e d i t o r . I n t h e i n s t a n t c a s e , t h e c o n t r a c t b e t w e e n t h e f o r w a r d i n g and r e c e i v i n g b a n k s d i d n o t a r i s e o u t of a c u s t o m b u t out of an agreement between them - 21 - X-4lo4 by which the c o l l e c t i n g bank would cause the checks to be presented to i t for payment, and. immediately upon payment remit the amount of the checks so paid to the forwarding bank by a shipment of currency, or by a .draft upon some other bank with which i t had funds upon deposit. Under these circumstances, i t was net contemplated that the receiving bank should become the owner of the s p e c i f i c money collected, and i t had ho express or implied contract r i g h t to lend,or otherwise use i t in i t s banking business. It was a special agent of the for- warding bank to c o l l e c t the checks and remit the money immediately, and the relationship of debtor and creditor did not a r i s e . Board of Supervisors v . Prince Edward-Lunenburg County Bank et a l s , 1JS Va. , 31 Va. App. 33&* In determining whether or not the f a i l e d bank i s a debtor or a trustee, the court may well look to the intention of the p a r t i e s . If the f o r - warding bank intends to leave the money in the hands of the c o l l e c t i n g tank, to be used by i t in i t s usual course of business, i t intends to become a general depositor and accepts the bank as a debtor. If on the other hand the forward- ing bank, as in the instant case, does not intend i t to be so used, and demands that the proceeds of the checks be immediately returned to i t , i t does not become a depositor, but singly entrusts the bank with the money f o r a special purpose, and the c o l l e c t i n g bank becomes a trustee and a court of equity w i l l impress with a trust the general funds in the hands of the t r u s t e e , in which the trust fund i s included. So far as the Davis case, supra, and the other cases from other j u r i s d i c t i o n s , r e l i e d on by the appellee, are in c o n f l i c t with the views herein expressed, we d e c l i n e , for reasons indicated, to f o l l o w them. a further review of these cases i s deemed unnecessary. In t h i s s i t u a t i o n - 22 - x-4104 Having sustained the p e t i t i o n e r ' s f i r s t and second assignments of error, i t i s unnecessary to d i s c u s s the third assignment; s i n c e appellant agrees that in the settlement of accounts the amount in i t s hands should be credited upon i t s claim as though i t were a part payment thereon. Our conclusion i s that t h e Prince Edward-Lunenburg County Bank was a s p e c i a l agent c o l l e c t i n g checks f o r the Federal Reserve Bank of Richmond* In equity and good conscience, the money thus i n i t s hands was a t a l l times the property of the Federal Reserve Bank of Richmond. This money passed from the agent's hands t o the hands of the receiver impressed with a t r u s t , and i s s u f f i c i e n t l y i d e n t i f i e d , since i t appears that an amount equal to the amount held for the Federal Reserve Bank of Richmond was i n i t s hands from January 6, 1922, u n t i l i t s f a i l u r e . A check i s not payment u n t i l the check i s paid, and the drawing of a draft by the Prince Edward-Lunenburg County Bank to the order of t h e Federal Reserve Bank of Richmond and mailing the same to the l a s t mentioned bank in no way a f f e c t e d the trust already impressed. While the check was not an as- signment of the fund against which i t was drawn, a s between the drawer of the check and the person who gave value for i t , i t was an equitable assignment of the fund pro tanto, Daniel on Negotiable I n s t r . , sec. I6U3, p. 1852. The decree complained of w i l l be reversed and set a s i d e , and the decree w i l l be entered here which the lower court ought to have entered, adjudging that the r e c e i v e r , H. D. P e t e r s , out of the amount now i n h i s hands, pay to the Federal Reserve Bank of Richmond the f u l l sum of $2,295* 10, with i n t e r est thereon from the 6th day of January, 1922, t i l l paid, l e s s the sum of $505.45, with i n t e r e s t from the 6th day of January, 1922, t i l l p a i d , and the c o s t s by the Federal Reserve Bank of Richmond in t h i s s u i t expended. Reversed and f i n a l .judgment» Tests: J. M. K e l l y , Clerk,