Bank of Dania v. Farmers and Traders Bank et al.

Supreme Court of Georgia1930-02-11No. No. 7020

169 Ga. 846

Summary · law.co

Holding. The trial court erred in rendering judgment for the defendants. The judgment is reversed.

When a bank provides funds to a corporation with instructions to place them on call loan, a principal-agent fiduciary relationship is created. If an officer of that corporation who knows about the fund's source and purpose also serves as an officer of the borrowing bank with authority to borrow, the borrowing bank receives imputed knowledge of these circumstances. Even when the funds are deposited with a correspondent bank and later drawn by the borrowing bank in its ordinary operations, the relationship between the two banks remains one of debtor and creditor rather than a deposit relationship.

A contractual debt relationship between the banks can arise through written communications such as a letter of advice, and payments made on the basis of such statements establish this relationship despite the absence of a formal contract. If the lending bank accepts a time certificate from the agent corporation as payment, this does not discharge the borrowing bank's obligation, particularly when the certificate goes unpaid. When the borrowing bank becomes insolvent and is taken into possession, the lending bank's claim ranks as a contractual liability with appropriate priority.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a fiduciary relationship arises when a bank directs a corporation to place funds on call loan
Whether an officer's knowledge of fund source and purpose is imputed to a borrowing bank when the officer serves both parties
Whether a call loan arrangement creates a debtor-creditor relationship distinct from a deposit relationship
Whether a time certificate accepted by a lending bank discharges a borrowing bank's debt obligation
Whether a contractual debt claim receives priority status in an insolvent borrowing bank's receivership

Procedural posture

The case was submitted to the trial judge on an agreed statement of facts without a jury.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Atkinson, J.

1. If a corporation receives funds from a bank with direc- . tion to place them on call loan for the bank, and the corporation undertakes to place the funds on call loan, a fiduciary relation of principal and agent arises between the parties.

2. If an officer of such corporation, whose duty it is to place the loan, having knowledge of the source from which the fund came, the purpose, to which it is to be applied, and the fiduciary relation between the parties, is also an officer of a contemplating borrowing bank with authority from such bank to borrow money for it, and actually handles a transaction in which the funds received by the first-named corporation are placed on call loan with the borrowing bank, the officer’s knowledge of the source of the fund, the purpose to which it is to be applied, and the fiduciary relation between the corporation and the lending bank will be imputed to the borrowing bank. Town of Douglasville v. Mobley, 169 Ga. 53 (3) (149 S. E. 575).

3. If in consummation of the loan the officer places the fund on deposit in a correspondent bank to the credit of the borrowing bank, and the latter bank draws it out in the regular course of business, the fund will not become a “deposit” in the borrowing bank, within the meaning of section 42 of article 19 of the banking act (Acts 1919, pp. 135, 209, 8 Park’s Code Supp. 1922, § 2280(pp); Michie’s Code 1926, § 2366 (188)), but will give rise to the relation of debtor and creditor between the borrowing bank .and the lending bank. See Citizens Bank of Waynesboro v. Mobley, 166 Ga. 543 (144 S. E. 119).

No. 7020.

February 11, 1930.

Rehearinq denied February 22, 1930.

4. If as a part of the transaction the negotiating officer issues to the borrowing bank a written statement, called a “letter of advice,” that it is a debtor to the lending bank as for a call loan for the amount of the fund, and another statement of similar import to the lending bank, and upon such statements portions of the principal and interest are paid and received by the borrowing and lending banks respectively, a contractual relation of debtor and creditor arises between the banks, notwithstanding no formal written contract be entered into between them, and the negotiating officer may cause an entry of deposit to be made on the books of the borrowing bank for the amount of the loan, to the individual account of the agent corporation.

5. If the lending bank accepts from the agent corporation its time certificate for the amount of the debt of the borrowing bank, the borrowing bank not being a party thereto, such acceptance will not be a novation or operate to discharge the borrowing bank, especially where the certificate is not paid and is produced in court at the trial for cancellation.

6. The borrowing bank having been taken in possession by the State superintendent of banks on July 12, 1926, as an insolvent institution, the priority of the lending bank will rank as a contractual liability under subsection 5 of section 19 of the act of 1925 (Ga. L. 1925, pp. 119, 129; 12 Park’s Code Supp. 1926, § 2268 (s); Michie’s Code 1926, § 2366(70)). Citizens Bank of Waynesboro v. Mobley, supra.

7. The trial judge, to whom the case was submitted upon an agreed statement of facts without a jury, erred in rendering judgment for the defendants.

Judgment reversed.

All the Justices concur.

Robert H. Jones Jr., and Alfred C. Broom, for plaintiff. Howell, Heyman & Bolding and Herman Heyman, for persons at interest, not parties of record.

Orville A. Park, G. N. Davie, and J. P. Kemp, for defendants.