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0 0 P IN THE SUPREME COURT OF APPEALS OF VIRGINIA Y X-6078 FEDERAL RESERVE BANK OF RICHMOND, VA. AND ERIE STEAM SHOVEL COMPANY .) v. ) OPINION BY JUDGE R. H. L. CHICHESTER, Wytheville, Va. June 14, 1928. ) STATE AND CITY BANK AND TRUST COMPANY, ET AL, CIRCUIT COURT OF HALIFAX COUNTY. This cause was submitted, to the t r i a l court upon an agreed s t a t e ment of f a c t s , the e s s e n t i a l portions of which are set out in the p e t i t i o n for an appeal and the brief of appellees, substantially as follows: On November 26?, 1923, the Federal Reserve Bank of Richmond, Va., forwarded to the Bank of V i r g i l i n a at Halifax, Va., for c o l l e c t i o n and remittance, a certain promissory note made by J. J. B a t t e r s h i l l & Son of V i r g i l i n a , which belonged to the Erie Steam Shovel Company. The Note was for the principal sum of $875.00 and interest amounting to $39.37, a t o t a l of $914.37, and matured on Dec. 6, 1923. On Dec.8, 1923, the Bank of Vir- g i l i n a presented several items, including the above note, to the Citizens Bank of V i r g i l i n a for payment and received payment for the items presented in the form of a check of the Citizens Bank for $922.45, drawn upon the F i r s t National Bank of Richmond. On the same day, Dec. 8th, the V i r g i l i n a Bank drew and sent i t s check, in favor of the Federal Reserve Bank, f o r $914.37, the amount of the above mentioned note, principal and i n t e r e s t . This check was not received by the Federal Reserve Bank u n t i l the afternoon of Dec. 11th. The check was drawn upon the State and City Bank and Trust Company with which the V i r g i l i n a Bank had, for many years, carried an ordinary commercial checking account. On the morning of the day on.which the check in favor of the - 2 - X-60rg Federal Reserve Bank was drawn and sent the V i r g i l i n a Bank had to i t s credit with the State and City Bank a balance of $11,564.32 and at the c l o s e of "business on that day a "balance of $11,554.27, according to the "books of the State and City Bank. When the check in favor of the Federal Reserve Bank was drawn and forwarded the V i r g i l i n a Bank credited, on i t s "books, the State and City Bank with the amount of that check, namely $914.37. On a date, not appearing from the record, the above mentioned check of the Citizens Bank to the Bank of V i r g i l i n a for $922.45, which the Virgilina Bank had received in payment of the $914.37 note and of several other smaller items, presented to the Citizens Bank for payment at the same time, was sent as a part of a remittance of nine items, checks, or d r a f t s , drawn upon seven d i f f e r e n t c i t i e s or towns, and aggregating $1,785.88, to the State and City Bank for c o l l e c t i o n and credit to the account of the V i r g i l i n a Bank. This remittance reached the State and City Bank on December 10, 1923, and on the same day various other items were received "by the State and City Bank from the Virgilina Bank for c o l l e c t i o n and c r e d i t , the aggregate r e c e i p t s and deposit, of that date amounting to $9&777»61. On the day of the receipt of such deposit, namely, Dec.10, 1923, the State and City Bank presented the check of the Citizens Bank f o r $922.45 to the F i r s t National Bank of Richmond, upon which i t was drawn, and received payment thereof. The amount of the remittance from the V i r g i l i n a Bank to the State and City Bank was credited to the account af the V i r g i l i n a Bank upon i t s receipt. The note due the Steam Shovel Company had been forwarded by t]ie Federal Reserve Bank to the Bank of V i r g i l i n a pursuant to an agreement whereby the Bank of V i r g i l i n a had undertaken to c o l l e c t for the Reserve Bank notes and other negotiable instruments payable in or near V i r g i l i n a . TJhder that agreement c o l l e c t i o n remittances from the Bank of V i r g i l i n a to the Reserve :yxS48 - * - Bank wore u s u a l l y made by means of a draft drawn by the Bank of V i r g i l i n a upon some bank in the City of Richmond or other reserve c i t y ift which the Bank of V i r g i l i n a had fund,s on deposit. The V i r g i l i n a Bank having a credit balance of $11,564.32 as Of the morning of Dec. 8th made the following deposits and withdrawals from that period u n t i l the close of business on Dec. 11th, namely, on December Fed. 8th i t deposited $563.18 and discounted i t s $10,000 note for the net sum Bank v. State of $9,946.33. On the same day i t paid i t s $10,000 note maturing on that & C. day and checked out $519.54, on December 10, 1923, i t deposited in the State and City Bank $9,777.61 (which deposit included the check of the Citizens Bank for $922.45), and on the same day i t checked out $8,431.92. On December 11th i t deposited $11,500.07. $845.2*1. and on the same day checked out This l e f t on the books of the State and City Bank a credit balance to the account of the V i r g i l i n a Bank of $2,245.15. These d e t a i l s are given to show the usual course of dealing between these banks. They are important in view of the character of the controversy here. On December 11th the Bank of V i r g i l i n a was closed and i t s operations suspended, and thereafter the State and City Bank and Trust Company applied the above balance of $2,245.15 upon the indebtedness of the Virg i l i n a Bank to i t , which indebtedness consisted of two notes, one for $15,000 maturing December 27, 1923, and the other for $10,000 maturing January 7, 1924. On December 12, 1923, at the time of the application of t}iis balance to the notes above mentioned, the State and City Bank had no knowledge of the existence of the check in favor of the Federal Reserve Bank for $914.37, nor did i t have any u n t i l i t was presented for payment, and then the State and City Bank refused payment thereof. - 4 - X-6078 Thereafter the Federal Reserve Bank f i l e d i t s p e t i t i o n in the cause then pending in the Circuit Court of Halifax county, wherein a receiver had been appointed for the V i r g i l i n a Bank, seeking to impress the funds which had been ^n deposit with the State and City Bank to the c r e d i t of the V i r g i l i n a Bank prior to t h e i r application to the notes held by the State and City Bank, with a t r u s t in i t s favor as against which the State and City Bank had no r i g h t to apply the balance upon the indebtedness due i t by the Bank of V i r g i l i n a . The commissioner in chancery, to whom the question in controversy was referred, reported in favor of the claim of the Federal Reserve Bank, exceptions were duly taken and were sustained by the court, and thereupon a decree was entered e s t a b l i s h i n g the right of the State and City Bank and Trust Cbmpany to make the a p p l i c a t i o n . From t h i s decree t h i s appeal has been taken. The i s s u e , therefore, before t h i s court i s narrow and w e l l defined and c o n s i s t s only of the question whether, upon the f a c t s shown in t h i s record, the State and City Bank, with which the V i r g i l i n a Bank carried an ordinary commercial checking account, had the r i g h t to apply to i t s notes so much of the balance of the V i r g i l i n a Bank as equalled that portion of the $922.45 check of the C i t i z e n s Bank which represented the proceeds of the note of the Federal Reserve Bank, v i z . , $914.37. I t may be s a i d that the controversy here presents a case of a c o n f l i c t of e q u i t i e s as to the $914.37, between the Federal Reserve Bank (acting of course as agent for the Erie Steam Shovel Company) on the one s i d e , and the State and City Bank and Trust Company on the other. The question i s narrow and well defined as has been pointed o u t , but i t s d i f ficulty consists in determining which has the superior e q u i t y . - 5 - X- 6078 The equity of the Federal Reserve Bank a r i s e s i t i s said, out of the f a c t that the fund of $914.37 c o l l e c t e d by the Bank of V i r g i l i n a for i t and sent along with other funds, f o r deposit to the l a t t e r "bank's c r e d i t , to the State and City Bank, as set out heretofore, was impressed with a trust, which made the r i g h t of the Federal Bank to the fund superior to that of the State and City Bank, The equity of the State and City Bank a r i s e s out of the alleged right of a bank generally, without knowledge of the f i d u c i a r y character of funds deposited with i t , to apply them to obligations due by the depositor to the bank. There are two l i n e s of authority, apparently as c l e a r l y defined as the i s s u e here, one of which i s in accord with the contention of the qppellaq.ts, and the other of which i s in accord with the contention of the appellee. These a u t h o r i t i e s have been presented in impressive array by the learned counsel for both contestants and the case was ably argued o r a l l y . The a u t h o r i t i e s r e l i e d on by the appellant are to the e f f e c t that where funds, impressed with a t r u s t , are deposited in a bank to individual credit,and without earmark to indicate they are trust funds, and the bank in which the deposit i s made has no notice of the trust character of the funds, y e t , before the bank can apply the funds to any indebtedness due by the depositor to the bank, so as to defeat the claim of the r e a l owners of the fund, i t must, in addition, have given credit to the depositor or must have suffered balances to remain in i t s hands on account of the receipt of the deposit. The a u t h o r i t i e s r e l i e d on by the appellees are to the e f f e c t thp,t where a bank has no notice that funds deposited are held by the depositor in t r u s t , i t may apply such deposit to the depositor's individual debt to i t without becoming l i a b l e to the b e n e f i c i a l owner. It i s conceded, in the instant case, that i f |he rule promulgated , 5 - X- 6078 by the f i r s t l i n e of a u t h o r i t i e s i s to p r e v a i l , the appellants are e n t i t l e d to recover, "but i f the rule of the second l i n e p r e v a i l s here, the appellee (State and City Bank), i s e n t i t l e d to retain the fund as an o f f s e t to the indebtedness due i t by the Bank of Virgilina, because i t i s conceded that the State and City Bank had no notice or knowledge of the trust character of the funds« We think, on p r i n c i p l e , that t h i s l a t t e r l i n e of cases has evolved the b e t t e r r u l e . I t i s consistent with the long established general doc- trine that the deposit of funds in a bank by a customer creates the r e l a tion of debtor and creditor between them, and that the money immediately becomes the property of the bank. Thus in Pennington v. Bank 114 Va.675, i t was held: "The general doctrine i s s e t t l e d that the c o l l e c t i o n of a draft by a bank f o r a customer in the ordinary course of business and placed to the customer's c r e d i t amounts to a general deposit by the l a t t e r and creates the r e l a t i o n of debtor and creditor between them. In such case the customer or depositor has the right to demand of the bank an equivalent amount of money, but not the s p e c i f i c coins or cither currency deposited." The same p r i n c i p l e i s enunciated in Arnold v. Bank, (Cal.) 13 A. L.R., p. 322, where i t was said, "It i s w e l l s e t t l e d here that the r e l a t i o n between a general depositor and the bank in which h i s deposit i s made i s simply that of debtor and creditor. The moneys deposited immediately become the property of the bank, and the l a t t e r becomes debtor of the depositor for the amount of the deposit, the same being payable on demand and on chetiks of the creditor," Thus i n Ford v. Thornton, 3 Leigh, 753, where one Gregory died insolvent with a bank balance and also indebted to the bank upon h i s note, t h i s Court said: "According to my view of the case, no part of Gregory's http://fraser.stlouisfed.org/ deposit in Federal Reserve Bank of St. Louis bank constituted, upon h i s death, general a s s e t s of the e s t a t e , - 7 - X-607B . . rj except the excess above what was s u f f i c i e n t to l i q u i d a t e the note of Gregory due to the bank. The bank, in f a c t , was only a debtor for the d i f f e r e n c e . The r e l a t i o n s h i p of debtor and creditor with a l l i t s i n c i d e n t s , i s f u l l y recognized in the d e c i s i o n s r e l i e d lupon by the a p p e l l e e , while the r u l e e s t a b l i s h e d by those a u t h o r i t i e s r e l i e d on by the appellant ignores, and i s i n c o n s i s t e n t with, t h i s r e l a t i o n s h i p . This i s apparent from a perusal of the case of Bank of Metropolis v. New England Bank, 6 Howard 212, which i s the b a s i s of the d e c i s i o n s r e l i e d on by a p p e l l a n t s . In that case which was twice before the Supreme Court, Chief J u s t i c e Tandy, who wrote the opinion for the Court formulated three i n s t r u c t i o n s which he declared to be the law in such c a s e s , f o r the guidance of the t r i a l court, which seems to have misconstrued the f i r s t opinion handed down in the case. These i n s t r u c t i o n s are: 11 1, I f , upon the whole evidence before them, the jury should f i n d that the Bank of Metropolis at the time of the mutual dealings between them, had n o t i c e that the Commonwealth Bank had no i n t e r e s t in the b i l l s and notes in question, and that i t transmitted them for c o l l e c t i o n merely as agent, the then the Bank of/Metropolis was not e n t i t l e d to r e t a i n against the New England Bank f o r the general balance of the account with the Commonwealth Bank. "2. And i f the Bank of the Metropolis had not n o t i c e that the Commonwealth Bank was merely an agent, but regarded and t r e a t e d i t as the owner of the paper transmitted, yet the Bank of the Metropolis i s not ent i t l e d to r e t a i n a g a i n s t the real owners, u n l e s s c r e d i t was given to the Commonwealth Bank, or balances s u f f e r e d to remain in i t s hands to be met by the n e g o t i a b l e paper transmitted or expected to be transmitted in the usual course of the dealings between the two banks. - 8 11 X- 6078 5,1 3. But i f the jury found, that, in the dealings mentioned in the testimony, the Bank of the Metropolis regarded and treated the Commonwealth Bank as the owner of the negotiable paper which i t transmitted for c o l l e c t i o n , and had no notice to the contrary, and upon the credit of such remittances made or anticipated in the usual course of dealing between them balances were from time to time buffered to remain ih tke hands of the CommbhWealth Bank^ to be met by the proceeds of such negotiable paper, then the p l a i n t i f f in error i s e n t i t l e d to retain against the defendant in error for the balance of account due from the Commonwealth Bank." This leading case i s quoted by p r a c t i c a l l y a l l of the cases which held that the bank in which the deposit was made must have given some credit to the depositing bank on account of the deposit or suffered balance to r e main on i t s hands on account of the receipt of the deposit, in addition to the requirement that the bank in which the funds are deposited must have had no notice of their trust character. There i s undoubtedly a wealth of authority following t h i s decision, and many of the cases are well reasoned. An e s p e c i a l l y strong case i s that of Shotwell v. Sioux F a l l s Sauines Bank. 34 S. D. 109, 147 IT.W.288, L.R.A. 1915-A, p.715, but as heretofore stated a l l these cases ignore the fundamental p r i n c i p l e obtaining in the relationship of debtor and creditor. The weight of authority appears to be largely with those cases which hold that unless the bank had n o t i c e of the trust character of the fund i t has a l i e n on the funds deposited, or rather, more properly speaking, a right of set o f f of any debt due i t by the depositor against such deposit. In F i r s t Morse on Banks and Banking, 5th Edition, p. 618, p.618, t h i s i s said: "Neither shall the banker have h i s l i e n upon non-negotiable property subject to a t r u s t , and improperly l e f t with him or pledged to him by the trustee, though the bank i s without n o t i c e of the trust; u n l e s s , - 9 - X-6078 indeed, the c e s t u i qui trust shall have done some act or "been g u i l t y of some negligence such as to deprive him of h i s counter r i g h t s . And a deposit in the name of A. as agent or trustee, or in the name of A. i f the bank has notice that i t "belongs to another, cannot be applied by the bank to A. 1 s debt to i t s e l f , nor w i l l i t have any l i e n on a fiduciary deposit. If the trust property i s traceable into the debt now due from the bank to the dep o s i t o r , the true otoner can claim the fund. "But if the trust properly c o n s i s t s of b i l l s or notes, payable to bearer, or other property transferable by delivery merely, and be not earmarked as trust property, i f the customer deposit them as i f they were h i s own, and the banker receives them in due course, bona f i d e and with no notice of the t r u s t , he s h a l l hold them under h i s l i e n . "In the case of money, or any negotiable s e c u r i t i e s , i t has been frequently held that where the bank has no notice that they do not belong to the depositor, i t acquires a v a l i d l i e n for h i s indebtedness." In 7 C.J. at p. 659 the rule i s stated thus: "Where a bank has no notice that funds deposited are held by the depositor in trust, i t may apply such deposit to the depositor's debt without becoming l i a b l e to the b e n e f i c i a l owner." In Millhouse v.Citizens Bank of Valdosta, 14 Ga, App. 240, the syllabus by the Court,says : "Nor would the bank's right thus to apply the fund" (to a debt) "be defeated merely because before the application was made a check drawn by the depositor had been presented for payment, which check was given for money previously c o l l e c t e d by the depositor for the payee. The right to make the application e x i s t s whether the indebtedness of the depositor be that of a principal, or upon an obligation in which he i s only secondarily l i a b l e , " - 10 - X-6078 Again in Wil8on v. Farmers First National jBank (Mo. App. 1914) 162 S.W, 1047, the Supreme Court of Missouri said; "A general deposit in a bank made "by, or f o r the account o f , a depositor creates the r e l a t i o n s h i p of debtor and creditor between the bank and the depositor, and there can be no question of the right of the bank to apply such deposit in payment of an indebtedness of the depositor to the bank without h i s consent. And, further, the rule i s well s e t t l e d that money has no earmarks, but 'passes and may be. received from hand to hand without inquiry sts to anybody1 a claim thereto by a l l who have no notice of i t s o r i g i n . 1 Bank vi Bank, 102 Mo. App. 357. "In the case j u s t c i t e d the deposit consisted of money r e a l i z e d by the depositor from c a t t l e he had converted to h i s own use. In an action by the owner of th6 c a t t l e against the bank, we held that the status of creditor and dob tor had been created between the depositor and the bank, and that the l a t t e r , having no knowledge of any informity in i t s customer's t i t l e to the money, was e n t i t l e d to apply the deposit in extinguishment of a demand i t held against him. And so we would hold in t h i s case, i f the deposit made by the commission company for the b e n e f i t of Grover had been made with h i s consent, or had received h i s implied approval a f t e r he became informed that i t had been made. In such s t a t e of f a c t s (as we had before us in the case cited) the relationship of banker and depositor - of debtor and creditor would e x i s t in law, and the banker would be e n t i t l e d to apply the deposit on a debt the depositor owed him regardless of the source of the deposit. See a u t h o r i t i e s reviewed in the c i t e d cases; also Butcher v. Butler, 134 Mo. App. 61, 114 S.W.564." (Opn. pp. 1048-9.) In McStay Supply Company v. John S. Cook and Company, (Nevada 1913) \Z2 pac. 545, the Supreme Court of Nevada a f t e r a thorough examination of the a u t h o r i t i e s lays down the following p r i n c i p l e s a f f e c t i n g the r e l a t i o n http://fraser.stlouisfed.org/ ship of a bank Federal Reserve Bank of St. Louis and i t s depositors as established by the overwhelming weight - 11 - X-6078 of authority. "An examination of the authorities w i l l d i s c l o s e that as a matter of law the following p r i n c i p l e s a f f e c t i n g the r e l a t i o n s of a "bank and i t s depositors as may be involved in t h i s case are established by an overwhelming weight of authority. "1. The r e l a t i o n between a bank and i t s depositors i s that of debtor and creditor. There can be no doubt of t h i s proposition. Money deposited in a bank becomes part of i t s general a s s e t s , and the bank simply becomes a debtor of the depositor. The absolute t i t l e to the money by the mere act of deposit passes to the bank. * * * "2, The bank has a l i e n upon a l l funds belonging to depositors deposited for any indebtedness owing to i t by the depositors. * * * "3. If a principal permits h i s agent to deposit money in the bank without any n o t i c e to the bank that the money belongs to the p r i n c i p a l , and the agent checks out the money or subjects i t to a l i e n , on account of any borrowing of money, then the principal and not the bank i s the loser." (Citing cases from England, U. S. Supreme Court, Mass., N.Y., Neb., Mo., Iowa, Gra., Kansas, Colo., Pa., and Minn.) "4. If the principal n eglects to give a notice u n t i l the bank's l i e n has attached, then a notice comes too l a t e , and the bank has a right to apply the money to s a t i s f y i t s l i e n . * * * But where, as in the present case, trust funds or s e c u r i t i e s belonging to others are deposited by a depositor with a bank,and the bank has knowledge of the f a c t that these funds do not belong to the depositor and that he i s merely acting as a c o l l e c t o r or agent of another, the bank has no right whatever to apply said funds or s e c u r i t i e s to any indebtedness of the depositor, nor can the bank acquire any l i e n upon such funds or s e c u r i t i e s so dep o s i t e d by a depositor who may be indebted to the bank." - 12 - X-6078 55i See also Sparrow v. State Exchange Bank, 103 Mo. 1pp. 338; Wood vt Boylston National B?nk, 129 Mass. 358, 37 Am. Rep. 366, Iatnmel v. Bean, 68 Kan. 568. The case of JClmrnel v. Bean, supra, contains a very elaborate discussion of the proposition under consideration. In that opinion among other things the following quotations are made: "The rule has been s e t t l e d "by a long l i n e of cases, that money obtained by fraud or felony cannot be followed by the true owner into the hands of one who has received i t bona f i d e and for a valuable consideration in due course of business. "It i s said that the case i s to be governed by the doctrine established in t h i s State that an antecedent debt i s not such a consideration as w i l l cut o f f the e q u i t i e s of third p a r t i e s in respect of negotiable securi t i e s obtained by fraud. But no case has been referred to where t h i s doctrine has been applied to money received in good f a i t h in payment of a debt. It is absolutely necessary for p r a c t i c a l business transactions that the payee of money in due course of business shall not be put upon inquiry at his p e r i l as to the t i t l e ,of the payer. Money has no earmark. The purchaser of a chattel or a chose in action may, by inquiry, in most cases, ascertain the right of the person from whom he takes the t i t l e . But i t i s generally impracticable to trace the source from which the possessor of money has derived i t . It would introduce great confusion into commercial dealings i f the creditor who receives money in payment of a debt i s subject to the r i s k of accounting therefor to a third person who may be able to show that the debtor obtained i t from him by felony or fraud. The law wisely, from considerations of public p o l i c y and convenience, and to give security and certainty to business "transactions, adjudges that the possession of money v e s t s the t i t l e in the holder as to third persons dealing with him and receiving i t in due course of business and in good f a i t h upon a v a l i d consideration. If the consideration - 13 - X-6078 i s good as "between the p a r t i e s , i t i s good as to a l l the world." Stephens v. Board of Education, 79 H.Y. 183, 186, 187, 35 Am. Rep. 511. "If a trustee or other fiduciary person, in v i o l a t i o n of h i s own duty,uses trust money to pay an antecedent debt of h i s own to a creditor who has no n o t i c e of the breach of t r u s t , or that the money i s subject to the t r u s t , in such a manner that the money i s received as a general payment, and not as a d i s t i n c t and separate fund, then the money becomes f r e e from the t r u s t , and cannot be followed by the beneficiary into the hands of the creditor, although, in general, an antecedent debt does not c o n s t i t u t e a valuable consideration." In the note, p. Pom. Ed. J r . , 2nd ed., Sec. 1048. 424, of 111 Am. S. Rep., in discussing the bankers l i e n "On General Deposits" where the e q u i t i e s of third p a r t i e s are involved the annotator says: "Where trust funds are deposited with a bank, and the bank has notice of their trust character, i t has no right to appropriate them to the payment of the individual debt of the depositor due from him to i t ; * * * But i f the bank has no notice that the deposit made by a trustee i s not h i s private property, i t may, according to the weight of authority, apply the fund to the payment of the depositor's indebtedness to i t . * * * Where an agent or factor has deposited h i s p r i n c i p a l ' s money in a bank, and the bank i s chargeable with notice of the true ownership of the funds, i t i s not e n t i t l e d to apply such funds to the payment of the into dividual debt of the agent owing /it. * * * But a bank cannot be held to account to the owner of a fund which has been deposited by an agent in h i s own name and applied on h i s overdraft, i f the bank has no knowledge of the agency. * * *." Again on page 419 of the same note, under the caption "On General Deposits - Lien in General," the annotator says: "It i s a well s e t t l e d prin- - 14 - X-6078 555 c i p l e of the law merchant that a bank, without an express agreement therefor, has a general l i e n on the moneys, funds and s e c u r i t i e s of a customer coming into i t s possession in the course of their dealings, for any balance of general account, or other indebtedness due the bank from the customer. This l i e n does not a r i s e where there i s a special agreement or a particular mode of dealsuch ing, or other circumstances inconsistent with/a general l i e n ; but ordinarily i t attaches to the moneys and s e c u r i t i e s deposited in the usual course of business, not only against the depositor, but against the unknown e q u i t i e s of a l l others in i n t e r e s t . " In the note of Arnold v. San Ramon Valley Bank, reported in 13 A.L.R. p. 327, in a note under the caption "Effect of Lack of Knowledge of Fiduciary Character of Funds - General Bills permitting Application," the annotator says: "The decided weight of authority i s to the e f f e c t that where the bank, in which funds in which third persons have an i n t e r e s t are deposited in the individual name of the depositor, has neither actual knowledge , nor n o t i c e of f a c t s suff i c i e n t to put i t upon enquiry, as to the true character of the deposit, i t may apply the'.deposit to the individual debt of the depositor." There are three decisions of this court referred to by appellant, viz: Federal Reserve Bank v. Peters, 139 Va. 45: Federal Reserve Bank v. Bohannon, 141 Va. 285, and Webb, Rec'r. v. 0'Geary, 145 Va. 356. There i s nothing inconsistent in any of these cases with the position we have taken in the instant case. The case of Federal Reserve Bank v, Bohannon, supra, has some application to the f a c t s of the instant case and i s e n t i r e l y consistent with our conclusions here. Bohannon had been appointed receiver of the Bank of Disputanta on Jan. 23, 1922. On January 20th the Federal Reserve Bank had sent to the Dis- putanta Bank for c o l l e c t i o n and immediate remittance certain checks, aggre gating $1,416.25. The checks were drawn upon the Disputant a Bank which car- X-6078 — 15 — r i e d an account with the V i r g i n i a National Bank, of Petersburg, V i r g i n i a . The Disputants Bank r e c e i v e d these checks on Jan. 21st,i c a n c e l l e d them, charged them to the accounts of the drawers and remitted to the Federal Reserve Bank "by i t s exchange d r a f t on the Virginia Bank, which was received on January 23rd and sent to the Virginia Bank for payment. The r e c e i v e r s h i p had intervened, however, and the V i r g i n i a Bank declined payment of the d r a f t . When the exchange draft was presented to the Virginia Bank f o r payment the account of the Disputanta Bank showed a credit balance of $7,340.41, but the V i r g i n i a Batik h e l d a tlote of the f)idputant& Bank, not due, f o r $25,000.00 and held c o l l a t e r a l s e c u r i t y therefor to the amount of $52,199.63. The V i r g i n i a Bank appropriated the balance of $7,340.41 and c r e d i t e d i t upon the note. This court in disposing of the controversy said: "In the i n s t a n t case the exchange draft was drawn on funds on which there was a preferred l i e n which was enforced, thus leaving nothing with which to pay s a i d d r a f t . " Upon the whole case we think that the Federal Reserve Bank had no equity, to the extent of $914.37, in the account of the V i r g i l i n a Bank on deposit in the State and City Bank which was superior to the equity of the State and City Bank t h e r e i n . The V i r g i l i n a Bank did not seek to segregate the proceeds of t h i s c o l l e c t i o n but followed the u s u a l course of d e a l i n g between the two i n s t i t u t i o n s and made the remittance by means of a draft upon "such bank in the City of Richmond - - - in which the bank o f V i r g i l i n a had funds on deposit." When the Federal Reserve Bank presented i t s check from the V i r g i l i n a Bank these funds had not only been blended with the other funds c r e d i t e d to the V i r g i l i n a Bank in the State and City Bank but they had been c r e d i t e d on the notes then due by the V i r g i l i n a Bank to the State and City Bank. the n o t e s Digitized fortrue FRASER It i s were not a c t u a l l y due but it i s conceded that upon the i n s o l - / - X-6078 1 6 - vency of the V i r g i l i n a Batik i t s obligations to the State and City Bank became due, and the State and City Bank had a right to treat them as past due o b l i gations. Our opinion therefore i s that the decree of the Circuit Court of Halifax County should be affirmed. A Copy AFFIRMED. Teste: (sgd) J. M. Kelly, Clerk.
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