Old Company's Lehigh, Inc. v. Meeker

Background

A New Jersey corporation owned a $3,000 promissory note made by R. G. Brewer, Inc. The plaintiff deposited the note for collection through banks to the First National Bank of Mamaroneck. Brewer had an account at that bank with enough funds, and on January 14 it gave the bank a check and received back the note, which the bank treated as paid. Two days later the Mamaroneck bank was closed by the Comptroller because it was insolvent and had not turned over any collection proceeds to the receiver. The plaintiff sued, claiming a trust over the bank’s assets so it would be paid ahead of other creditors, and alleged a conspiracy to defraud.

Reasoning

The Court examined whether that handing back of the note and acceptance of a check created a special trust or added value to the bank’s assets. The Court held it did not. The transaction merely reduced the bank’s liabilities and did not create a separate fund or increase assets for the plaintiff to claim. The note had not matured and there was no duty to collect early. Even if the collection agent acted wrongfully or knew of the bank’s weakness, that wrong gives rise to a damage claim, not a preferred trust on the receiver’s assets. The Court also noted that a New York rule giving such preference cannot be applied to a national bank.

Real world impact

People who send negotiable paper for collection cannot automatically take priority over other creditors when a national bank fails. The owner may still sue for damages or seek the return of the canceled note, but will rank as a general creditor and share in any dividend rather than receive special preference. The dismissal of the plaintiff’s principal claims was accordingly affirmed.