Interveners were customers of the Security Trust and Savings Bank both as borrowers and depositors. They had a pass book labeled "Security Trust Savings Bank, Fort Dodge, Iowa, in account with Natalini and Felciai." In it were *Page 1200 several pages of entries by date and amount. The last entry is the one in controversy and is as follows: "May 19 '30 $3126.15." This entry was the total of 72 different sums (checks) listed on an adding machine slip attached to the deposit slip. Printed in the pass book was the following "notice":
"In receiving items for deposit or collection, this Bank acts only as depositor's collecting agent and assumes no responsibility beyond the exercise of due care. All items are credited subject to final payment in cash or solvent credits. This Bank will not be liable for the defaults or negligence of its duly selected correspondents nor for losses in transit, and each correspondent so selected shall not be liable except for its own negligence. This Bank or its correspondents, may send items, directly or indirectly, to any bank including the payor, and accept its draft or credit as conditional payment in lieu of cash; and it may charge back any item before final payment, whether returned or not, also any item drawn on this Bank not good at close of business on day deposited."
Interveners contend here that because of this "notice" the bank took the 72 checks only as interveners' agent for collection, not on deposit, and that the bank acquired no title to them. For convenience of expression we shall speak of the transaction as a "deposit," and the Security Trust Savings Bank as "the Bank."
On May 17, 1930, interveners were owing the bank an overdraft of $550.70. One member of the intervener partnership was also indebted to the bank on his promissory note for $1,000, which had been pledged to the Continental Company as security for an indebtedness of the Security Trust Savings Bank. The deposit in question was made Saturday evening, May 17, 1930. Interveners and the Bank Official each made out a deposit slip in the following form:
"Security Savings Bank
Deposited by
Natalini Felciai. Ft. Dodge Ia 5-19-31
Please list each check separately
Currency _________________
Silver ___________________ *Page 1201 Gold _____________________ Checks Slp 3126.15"
Attached was the adding machine slip previously mentioned. Checks representing $123.35 of this amount were drawn on the Security Trust Savings Bank. The others were drawn on other banks. The intervener making the deposit testifies that the slip "is dated May 19th," but the fact is it was Saturday, May 17th, about 7:15 P.M. The banker made out the deposit slip.
"There was a list of the checks made out on the adding machine which totaled $3,126.15. All of the deposit consisted of checks. * * * The checks were first endorsed by me and my firm and I turned them over to Jim Jensen in the bank. I made out one deposit slip myself which the bank got. I had a list — Jensen made out the deposit slip. * * * which was put in the drawer and he wrote the deposit in my book."
The Bank did not open after Saturday, May 17. Intervener making the deposit further testifies:
"After the bank closed I went to the first man that was there and asked about the checks. He said the checks was closed and was in clearance Monday morning."
A representative of the Banking Department took charge of the bank and cleared the checks. There is no evidence that the endorsement of the checks was in any way limited. On June 16, 1930, interveners filed "Claim and Petition of Intervention," alleging that the receiver had classified their claim as a deposit of $2,575.45; "that in truth and in fact these interveners are entitled to a preference against the funds and assets in the hands of the receiver for said sum * * * because * * * these interveners entrusted the Security Trust Savings Bank with 72 checks drawn on other banks, which checks were left in the possession of the Security Trust Savings Bank under the following written agreement * * * [setting out the "Notice" previously referred to]. That said Security Trust Savings Bank, having obtained possession of said checks under said agreement, suspended its business and closed its doors before having performed any of the terms or conditions of said agreement *Page 1202 and without having collected any of said checks, * * * and that the proceeds and avails of the said checks have gone into the hands of the receiver. * * * that at the time said checks were entrusted to said bank, these interveners were owing said bank a sum slightly in excess of $600 on open account, and that the receiver * * * has deducted such amount from the aggregate sum of said checks and has classified the claim of these interveners with respect to the remainder of said checks as an ordinary deposit claim. Wherefore, these interveners pray that the court adjudge them to be entitled to a preferred claim for the sum of $2,575.45 * * *"
On September 4, 1930, interveners filed objections to receiver's report on the ground that it "fails to allow them a claim for preference in the sum of $2,575.45 as prayed in their petition of intervention filed June 16, 1930 * * *" In another division interveners claimed that they were entitled to offset the $1,000 note against the amount to which the bank was indebted to them or held trust funds for them. It was stipulated that the court should first decide whether the note might be offset, and "if such right of offset exists, the court shall order the same; and in such event the claim of the interveners for preference is to be reduced by the sum of $1,000. * * * And the claim for preference shall stand and be determined by the court only for the balance * * *" The court allowed the offset and granted interveners a preference for the balance, $1,575.45.
For the moment we lay the "notice" out of consideration. Deposit slips are receipts and constitute an admission of the existence of the relationship of debtor and creditor for the amount thereby acknowledged to have been received by the bank. In re Ruskay, 5 F.2d 143, 147; First National Bank v. Clark,134 N.Y. 368, 32 N.E. 38, 17 L.R.A. 580.
Interveners by making out the slip indicated their purpose of making a deposit. Blacher v. National Bank, (Md.) 135 A. 383, 387.
The evidence is that interveners endorsed the checks "and turned them over to" the bank. The bank gave interveners credit on their overdrawn account for the amount of the checks and (leaving the first sentence of the "notice" out of view) became the owner of them. As to the checks the relationship between the bank and interveners was that of endorser and *Page 1203 endorsee, and as to the balance of the credit interveners had the right to check against it and the relationship was that of debtor and creditor. Acme H. M.F. Co. v. Metropolitan Nat. Bank,198 Iowa 1337; Andrew v. Marshalltown State Bank, 204 Iowa 1190, 1193; Burton v. United States, 196 U.S. 283; 7 C.J. 599.
Such was the relationship although the bank by express or implied agreement reserved the right to charge back the checks if dishonored. Interveners had the credit. The bank had the title to the checks, although both the interveners' credit and the bank's title were conditional. Bellevue Bank v. Bank, 168 Iowa 707, 715; City of Douglas v. Federal Reserve Bank, 271 U.S. 489; In re Receivership Washington Bank, (Minn.) 75 N.W. 228, 229; Blacher v. Nat. Bank, (Md.) 135 A. 383, 386; Commercial Bank Tr. Co. v. Minshull, (Wash.) 242 P. 29, 30; Cottondale Planting Co. v. Bank, (Mo. App.) 286 S.W. 425, 427; Bryant v. Williams, 16 Fed. 2d 159, 162; Clancy v. First State Bank, (N.D.) 215 N.W. 779, 780; Scott v. W.H. McIntyre Co., 144 P. 1002, 1004; Walker Brock v. D.W. Ranlett Co., (Vt.) 93 A. 1054, 1056; Davidow v. Bank of Detroit, (Mich.) 236 N.W. 828; Tropena v. Keokuk Nat. Bank, 203 Iowa 701, 703.
The agreement for charging back in case of dishonor amounted only to a summary remedy for enforcing the endorsement. It did not operate to withhold from the bank the ownership of the paper. Id.
Was a different relationship created by the "notice"? Interveners' contention is that because of the terms of the "notice" the bank took merely the possession of the notes as interveners' agent for collection, and obtained no title. This contention is necessarily based upon the first sentence, namely: "In receiving items for deposit or collection this Bank acts only as depositor's collecting agent and assumes no responsibility beyond the exercise of due care."
The question thus presented is one of great importance, not only in respect to claims for preference such as that before us, but with respect to relationships and conditions that can not be foreseen. The checks were endorsed and delivered to the bank concededly on the understanding that the bank through its officers and employees would transmit them to other banks. If *Page 1204 the relationship of principal and agent between the claimants and the bank was created, the bank incidentally to such relationship was entrusted with the possession of the property, and consequently was a bailee. 6 C.J. 1099. The officers and employees of the bank and other banks to whom the paper might be transmitted obtained no title for themselves or their principals or correspondents. They might easily in the process of collecting and accounting in which the business is usually conducted and which was contemplated by the depositor at the time lay themselves open to a charge of larceny or embezzlement. See Dotson v. State, (Ark.) 10 S.W. 18; State v. Fraley, (W. Va.) 76 S.E. 134. In civil matters the question may be of great importance in controversies which may arise between the depositor or his creditors and the bank in cases of overdraft or of other indebtedness of the depositor to the bank; in controversies between drawers of checks and depository banks or their correspondents; in cases where drawers, endorsers or makers of deposited paper seek rescission against depositors; in controversies between the depositor's creditors and the bank and its endorsees; and in similar controversies in various relationships between the parties concerned, controversies in which the material question would be whether the holder of checks after depositing them retained title or acquired the rights of a depositor.
The meaning and effect of a contract, and the rights of the parties to it, are to be determined from their intention as evidenced by what they say and do and all that they say or do at the time and by their course of business (barring, of course, rules of evidence such as the parol evidence rule and statute of frauds, none of which is involved here.) The name or designation which the parties see fit to give to the transaction or to their relationship is not conclusive.
"In determining the real character of a contract, courts will always look to its purpose, rather than to the name given to it by the parties." Hervey v. Rhode Island Locomotive Works,93 U.S. 664, 672.
See, also, Burlington Savings Bank v. Prudential Ins. Co.,206 Iowa 475; Murch v. Wright, (Ill.) 95 Am. Dec. 455.
The fact, for instance, that the parties denominate their transaction a lease and themselves lessor and lessee respectively *Page 1205 does not of itself make the transaction a contract of lease if it be in law a contract of sale. The court will not permit itself to be deceived by a mere subterfuge. Id. Singer Sewing Machine Co. v. Holcomb, 40 Iowa 33; 6 C.J. 1088. This doctrine, of course, applies to a case where attempt is made to create a fictitious agency.
In determining whether a deposit is general or for collection the court will look to the real intention and purpose of the parties as revealed by the agreement and the circumstances by what they did and said at the time, and by their course of business. Id. Palo Alto County v. Ulrich, 199 Iowa 1; Dubuque Fruit Co. v. Emerson Co., 201 Iowa 129; Tropena v. Keokuk Nat. Bk., 203 Iowa 701; Andrew v. Marshalltown State Bank, 204 Iowa 1190; Southern Surety Co. v. West Side Bank, 207 Iowa 910.
We have not, as do some states, a statute determining the relationship or rights of the parties in cases such as this. The matter here must be determined by common-law principles.
Interveners do not claim to impress a trust upon the fund deposited because of fraud in receiving it when the officers knew that the bank was insolvent. See Andrew v. Marshalltown State Bank, 204 Iowa 1190.
The determination of the question presented depends upon the intention of the bank and depositor as disclosed by all the facts and circumstances of the transaction, including custom and course of business mutually known and recognized.
It is a matter of common knowledge that banks frequently were involved in controversies over such endorsements on account of negligence of correspondents in making collections and on account of refusal for various reasons by depositors to recognize the right of charging back unpaid paper. It was because of these difficulties that the practice of adopting a "notice" similar to that before us grew up.
We recur now to the sentence relied upon in support of the claim for preference, viz., "in receiving items for deposit or collection this bank acts only as depositor's collecting agent and assumes no responsibility beyond the exercise of due care." This sentence does not comprise all of the "notice" nor all of the elements or items of the transaction. One part of this sentence purports to stipulate the bank's relationship as that of *Page 1206 "collecting agent," but that very sentence denominated the receipts of items alternatively as "for deposit or collection" and denominates the interveners depositors. The court will not isolate particular expressions intended to deceive and make them controlling. Burlington Savings Bank v. Prudential Ins. Co.,206 Iowa 475; Owensboro v. Dark Tobacco Growers' Ass'n, (Ky.)300 S.W. 350; W.J. Barton Seed, F. Imp. Co. v. Mercantile Nat. Bank, (Tenn.) 160 S.W. 848; Standard Fashion Co. v. Magrane Houston Co., 259 Fed. 793, 794; Wheatman v. R. Hoe Co., (Wash.)290 P. 853.
As we have seen, laying aside the "notice," the acts of the parties at the time created the relationships of debtor and creditor and of endorser and endorsee. The sentence upon which intervener base their contention is followed by the statement "the items are credited subject to final payment." There is the further statement that "the bank may charge back any item * * * Also any item drawn on this bank not good at close of business on day deposited." There are specific provisions designed to relieve the bank from faults which otherwise might disable it from enforcing endorsements.
It is not disputed that if the deposit had been of cash the bank would have taken title to the cash and interveners would have been its creditors for the amount. Literally, however, the sentence in question would, on interveners' contention, apply to cash, for it reads: "In receiving items for deposit or collection this bank acts only as depositor's collecting agent." The language is in the alternative: "In receiving for deposit * * * this bank acts only as depositor's collecting agent." It is evident that the words "deposit or collection" could not have been intended distributively to create the technical relationship of principal and agent. The notice in express terms recognizes that the items are credited and that drafts or credits resulting from them are "conditional payment." The notice recognizes that the bank obtains title to the items deposited and that it has given credit to the depositor for them. The meaning and purpose of the notice therefore are found in the provision that the bank "may charge back any item before final payment whether returned or not." That is, though the bank has given the depositor credit the credit is not final but may be liquidated by charging back dishonored or worthless items. *Page 1207
Interveners were at the time of the deposit indebted to the bank on the very account to which the items were credited. They might have been indebted for an amount equal to or greater than the deposit. By the deposit and credit interveners provisionally paid the overdraft. Both parties could only have understood that the overdraft was paid and that interveners had a checking balance, (fraud not being claimed) subject to possible diminution by charging back. Suppose interveners had demanded of the bank return of all the checks, would they have been entitled to them? Suppose they had demanded back part of the checks. It was not known which or all of them might be dishonored. Of which ones could interveners legally and effectively have demanded a return?
Interveners concede the right of the bank to apply the deposit as far as necessary on the overdraft. To that extent necessarily they concede that the transaction was one of deposit and in effect of cash. See Perth Amboy Gas Light Co. v. Middlesex County Bank, 60 N.J. Eq. 84; 45 A. 704; Scott v. W.H. McIntyre Co., (Kans.) 144 P. 1002, 1004; Walker Brock v. D.W. Ranlett Co., (Vt.) 93 A. 1054, 1057.
To paraphrase the language of the court in the last cited cases: "It is apparent that the * * * [parties] did not use the phrase `for collection' in its strict technical sense."
In their claim as filed, and in their objections to the receiver's report, interveners do not assert title to the checks. They say merely that the bank having obtained possession of them under the agreement suspended its business "before having performed any of the terms or conditions of said agreement and without having collected any of said checks." When they went to the bank after it closed they did not demand a return of the checks. They merely "went to the first man that was there and asked about the checks." They did not claim to rescind the agreement or deny the interest of the bank in the checks. They could not, and did not, undertake to revoke the agreement without payment at least of the overdraft. Citizens' St. Bank v. E.A. Tessman Co., (Minn.) 140 N.W. 178. The evidence is "that the checks were all cleared." All conditions referred to in the claim, and on which the claim was based, have in fact been performed, though by the receiver instead of by the bank, and without protest, revocation or rescission by interveners. *Page 1208
The bank might take title provisionally or on condition subsequent. It might take title with option to return.
The case is analogous to one of sale or return, where we have held that the title passes with the right to the purchaser to rescind and return. Wind v. Iler Co., 93 Iowa 316; Wesco Supply Co. v. Allterton, 156 Iowa 695; 55 C.J. 585.
Interveners rely principally on In re Assignment of State Bank, (Minn.) 57 N.W. 336, and In re Bank of Minnesota, (Minn.) 77 N.W. 796, which recognize the principle, "* * * the question is one of the agreement of the parties, either express or implied, from the general course of business between them." Those cases involved the ownership of drafts payable in 30 or 60 days, drawn by the claimants upon their customers, deposited in the bank to their credit, pursuant to a statement in the pass book:
"`This bank, in receiving checks or drafts on deposit or for collection, acts only as your agent, and, beyond carefulness in selecting agents at other points and in forwarding to them, assumes no responsibility.'"
There were not, however, the provisions or circumstances that we have in this case. The item was the claimant's own draft. The evidence of the bank officer was that they regarded themselves as the agents of claimant "in case the collecting bank should fail to collect it." Whether the case may be fairly distinguished or not, the well settled principles above set out should control here.
Construing the transaction in its entirety and in its connections in the light of the well known banking practices we think that the words "this bank acts only as depositor's collecting agent" were not employed in a technical sense and cannot be given the effect of defining the exact and complete legal relationship between intervener and the bank. The bank took title to the checks. Interveners became a depositor. They agreed that the court might decide to offset the $1,000 note and have not appealed.
In the absence of any contract, this court is committed to the proposition that the title to all deposits passes immediately to the bank. It is a matter of common knowledge that prior to the use of the deposit contracts, such as the one involved in this *Page 1209 case, banks frequently found themselves in trouble on account of the negligence of their corresponding banks in making collections. They also found themselves in trouble because certain depositors refused to acknowledge the charge back on items not collectible. This led to the adoption of different contracts of the general type of the one involved in this case.
They are all contracts made for the purpose of and with the intention of protecting the bank. A close analysis of this particular contract bears no other interpretation than that it does not modify the old rule often expressed by this court, to wit: that the title to such items passes to the bank at the time of deposit, except in two particulars:
(a) In making collections, the depositary bank reserves the right to charge back to the customer's account the amount of any uncollectible item.
(b) The bank definitely protects itself by a specific expression in the contract from the result or results of the negligence of any corresponding bank, in handling these items for collection.
This particular case must be determined by the interpretation to be placed upon the contract. We have no statute on the subject. Our previous decisions have clearly laid down the general principle involved, and the only inquiry here is to what extent does this contract modify the general principle? We have then left only an interpretation of the contract. Inasmuch as it can only be construed to mean a modification of the general rule in this state to the extent of allowing a charge back and protecting the bank from the results of the negligence of collecting corresponding banks, it necessarily follows that the title to these checks passed to the bank, subject only to the right to charge back uncollectible items. — Reversed.
EVANS, KINDIG, De GRAFF and GRIMM, JJ., concur.