FARMERS NATL. BANK OF REMINGTON v. ROTTGER, REC

1. BANKS AND BANKING — Collections — Collecting Bank as Trustee. — Under the Bank Collection Code (Acts 1929, ch. 164, p. 520), the collecting bank is the agent of the forwarding bank, and its assets are impressed with a trust to the extent of collections made and not remitted in money, unless an unconditional credit is given on its books or on the books of another bank, which has been requested or accepted so as to create the relation of debtor and creditor. p. 634.

2. BANKS AND BANKING — Collections — Collecting Bank as Debtor. — The forwarding bank must request or accept credit for collection on the books of the collecting bank or another bank to create the collecting bank or such other bank a debtor for the amount collected. p. 634.

3. PAYMENT — Requisities and Sufficiency — Checks — Effect of Accepting Check. — A check does not constitute payment and acceptance thereof does not wipe out the original obligation, since acceptance is considered as on condition that it will afterwards be paid. p. 635.

4. BANKS AND BANKING — Collections — Request or Acceptance of Credit — Accepting Draft in Payment. — Where the books of a collecting bank, subsequently insolvent, merely showed receipt of items for collection, receipt of payment, and the issuance of a draft to the forwarding bank, neither such record on the books of the collecting bank, nor acceptance of the draft by the forwarding bank, constituted a request or acceptance of credit that would create the relation of debtor and creditor upon insolvency of the collecting bank before payment of the draft. p. 635.

5. BANKS AND BANKING — Collections — Collecting Bank as Trustee — Preference on Insolvency. — Where a collecting bank issued its draft on another bank to cover items collected and suspended business before payment thereof, there being no unconditional credit requested or accepted by the forwarding bank, the assets of the collecting bank were impressed with a trust in favor of the forwarding bank for which it was entitled to a preferred claim. p. 635.

FANSLER, J.

Appellant filed a petition to have a claim allowed as preferred. It was allowed as a general claim, the preference being denied. The facts are not disputed, and the error assigned questions the correctness of the court's ruling.

It appears that appellant forwarded two $500 public improvement bonds to the City Trust Company for collection. The items were collected with $30 interest, and on the same date the City Trust Company mailed its draft or check, drawn upon the Indiana National Bank, in favor of appellant, for the amount of the collection. This draft or check was received by appellant and sent to one of its correspondent banks for collection. Before presentment for payment to the Indiana National Bank, the City Trust Company suspended business on account of insolvency, of which fact the Indiana National Bank had notice when the draft was presented, and because of which payment was refused. Thereafter appellee was appointed receiver of the City Trust Company, which is insolvent.

Clause 3 of section 13 of the Bank Collection Code Act (Acts 1929, ch. 164, p. 520, Burns' Supp. 1929, § 3861.13) provides: "Where an agent collecting bank other than the drawee or payor shall fail or be closed for business as above, after having received in any form the proceeds of an item or items entrusted to it for collection, but without such item or items having been paid or remitted for by it either in money or by an unconditional credit given on its books or on the books of any other bank which has been requested or accepted so as to constitute such failed collecting or other bank debtor therefor, the assets of such agent collecting bank which has failed or been closed for business as above shall be impressed with a trust in favor of the owner or owners of such item or items for the amount of such proceeds and such owner or owners shall be entitled to a preferred claim upon such assets, irrespective of whether the fund representing such item or items can be traced and identified as part of such assets or has been intermingled with or converted into other assets of such failed bank."

Under the law in this state, as it was before the passage of this act, a collecting bank had the right to commingle the funds which it had collected with its own funds, and as soon 1, 2. as a collection was made the relationship of debtor and creditor arose and a trust relationship did not exist. It is the clear purpose of the Bank Collection Code Statute to change this situation. The collecting bank is made the agent of the forwarding bank, and its assets are impressed with a trust to the extent of any collections made which have not been remitted in money "or by an unconditional credit given on its (collecting bank's) books or on the books of any other bank which (unconditional credit) has been requested or accepted so as to constitute such failed collecting or other bank debtor therefor." A requested or accepted credit on the books of the collecting bank or another bank is necessary in order to make the collecting or other bank debtor for the amount collected.

The facts were stipulated, and disclose that the only entries made upon the books of appellee consist of an entry of the receipt of the items for collection, and an entry on its 3, 4. teller's sheet of a memorandum of the receipt of payment of the items and indicating the issuance of a draft covering the collection. If there is anything in this that could be deemed an unconditional credit on the books of the collecting bank, and there is no evidence of any credit of any kind upon the books of any other bank, we are still confronted with an absolute lack of evidence that any such credit has been accepted or requested. It is true that appellant received the draft, which was no more than the check of the collecting bank, drawn upon the Indiana National Bank; but the acceptance of a check is not considered the receipt of payment, since the check is considered as being accepted upon condition that it will afterwards be paid. Culver, Admx. v. Marks (1890), 122 Ind. 554, 23 N.E. 1086; Kinder v. Fishers National Bank (1931), 93 Ind. App. 213, 177 N.E. 904. The rule that a check is not payment, and that the acceptance thereof does not wipe out the original obligation, is recognized in a number of sections of the Bank Collection Code Act.

There was therefore no payment or remittance for the items collected, either in money or by unconditional credit upon the books of the collecting bank or another bank requested or 5. accepted by appellant. Therefore the assets of the collecting bank, which has failed, are impressed with a trust in favor of appellant for the amount of the proceeds of the collection, and appellant is entitled to a preferred claim therefor.

Judgment reversed, with instructions to sustain appellant's motion for a new trial.