American National Bank v. National Indemnity Co.

• Decision Date: 11 May 1955
• Docket Number: No. 15153.,15153.
• Citation: 222 F.2d 513
• Parties: The AMERICAN NATIONAL BANK OF SAINT PAUL, Appellant, v. NATIONAL INDEMNITY COMPANY OF OMAHA, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

222 F.2d 513 (1955)

The AMERICAN NATIONAL BANK OF SAINT PAUL, Appellant, v. NATIONAL INDEMNITY COMPANY OF OMAHA, Appellee.

No. 15153.

United States Court of Appeals Eighth Circuit.

May 11, 1955.

Milton H. Altman, St. Paul, Minn. (Lipschultz, Altman & Geraghty, St. Paul, Minn., on the brief), for appellant.

Sheldon J. Gensler, Minneapolis, Minn. (Irvin E. Schermer, Minneapolis, Minn., Daniel L. Gross, and Gross, Welch, Vinardi & Kauffman, Omaha, Neb., on the brief), for appellee.

Before SANBORN, JOHNSEN and VOGEL, Circuit Judges.

VOGEL, Circuit Judge.

Plaintiff, a Nebraska insurance company, licensed and doing business in Minnesota, seeks by this action an accounting of funds in excess of three thousand dollars deposited in the defendant bank, a Minnesota national bank, by the Charles T. Auch Agency, Inc., an authorized agent of the plaintiff, which had written policies and collected premiums for it in the State of Minnesota.

The claim of plaintiff is that such premiums as were deposited in the account constituted trust funds and were not subject to defendant bank's right of setoff against the agency's debt to it. The bank's defense is that they were not trust funds and that the equities are in favor of defendant and that defendant did not have actual knowledge that the agency was committing a breach of any fiduciary obligation nor did it have knowledge of such facts that its action in paying checks of the agency to itself (the bank) amounted to bad faith, and that plaintiff has not been able to trace the funds into defendant bank.

The case was tried to the Court and resulted in a judgment in favor of plaintiff. 120 F.Supp. 713. Defendant appeals.

The agency entered into a written agreement with plaintiff pursuant to which it solicited and sold insurance for plaintiff and collected premiums thereon. Such premiums, less commissions, were to be forwarded to plaintiff within 40 days from the end of the month within which the insurance became effective. The agreement between plaintiff and the agency, insofar as it is pertinent herein, provided as follows:

"All moneys paid by the policyholders to the agent, or to anyone representing him, shall be held by and chargeable to the agent as a fiduciary trust for and on behalf of the Company, and shall be paid over to the Company as hereinafter provided. * * *" (Emphasis supplied.)

"The agent agrees to pay to the Company all premiums accruing on insurance written under this agreement, whether or not collected by the agent from the assured * * * and guarantees to the Company earned premium on any such risks bound, whether collected or not.

"The agent shall furnish to the Company monthly, by the tenth day of the succeeding month (or at its option the Company may furnish to the agent) a statement of account covering transactions for each month, and the agent shall remit to the Company the net amount shown by such statement to be due the Company within forty days after the close of the month covered by said statement. * * * Above statements and remittances are to be sent to the Company at Ringwalt and Liesche, Agency, 532 Brandeis Theatre Building, Omaha, Nebraska."

The agency maintained but one general checking account in the defendant bank into which income and premiums were indiscriminately deposited. The agency made remittances to plaintiff from this account and also paid its operating expense therefrom. It represented many other insurance companies to whom it also made remittances from the same account.

During the existence of the contract between plaintiff and the agency, the defendant bank agreed to extend to the agency credit of $100,000.00 on an arrangement whereby the agency would assign to the defendant bank deferred payment insurance premium contracts and give its demand note for the full amount borrowed. Collections were to be made on such contracts by the agency and were to be deposited as soon as they were received in a special collection account. The bank had a rule that it would not accept agency checks in payment of notes executed by it. Only the insured's checks on such deferred premium contracts as were assigned to the bank were to be deposited in the special collection account. This rule the bank violated in a number of instances by accepting the agency's checks instead of the insured's checks. The defendant bank would charge the special account at periodic intervals and would credit the agency borrowings with the amount of charge-offs.

In March, 1952, the agency began to default in payment of customers' money into the premium collection account of the defendant bank. The officers of the bank made such inquiry as they believed necessary. The arrangement was continued. On September 3, 1952, the bank credit to the agency was increased to $125,000.00, with the same terms and conditions as in the original loan agreement.

Plaintiff was unaware of the fact that the agency was commingling funds. It made no inquiry on that score. During the latter part of February and the first part of March, 1953, the bank, by reason of facts coming to its attention, became suspicious of the agency and as a result of another inquiry discovered that most of the collateral given to it as security for advances to the agency consisted of forged instruments. The bank then attempted to exercise its right of set-off against the entire balance in the agency account. It contends that the agency account was subject to its right to set-off under the terms of an agreement with the agency.

The trial court allowed plaintiff to recover on four separate items and denied recovery on others. Evidence with respect to the four items on which recovery was allowed was disputed. This court, in its consideration of the appeal, however, must take that view of the evidence most favorable to sustaining the findings and conclusions of the trial court. All conflicts in the evidence must be resolved in favor of plaintiff, and plaintiff, as the prevailing party, is entitled to all favorable inferences that can reasonably be drawn from the proven facts. Gunning v. Cooley, 281 U.S. 90, 94, 50 S.Ct. 231, 233, 74 L.Ed. 720; Carter Carburetor Corp. v. Riley, 8 Cir., 186 F.2d 148, 150; Elzig v. Gudwangen, 8 Cir., 91 F.2d 434, 439; Cleo Syrup Corp. v. Coca-Cola Co., 8 Cir., 139 F.2d 416, 417, 418; Voss Bros. Mfg. Co. v. Voss, 8 Cir., 157 F.2d 263, 266; Skelly Oil Co. v. Holloway, 8 Cir., 171 F.2d 670, 674; Pendergrass v. New York Life Ins. Co., 8 Cir., 181 F.2d 136, 138. We are of the opinion that the record fairly well sustains the findings and conclusions of the trial court with respect to the four items allowed and which are generalized as follows:

The first item of $2,761.42 was found to represent premiums belonging to plaintiff which were deposited by the agency in its account with the defendant bank after March 20, 1953, on which date there had been a specific notice from plaintiff to the defendant bank that the agency was depositing its premiums in the agency account.

The second item of $1,481.14 represented premiums belonging to the plaintiff which were a part of the bank balance of $8,390.98 in the agency account on March 12, 1953, at which date the bank had attempted to appropriate the entire amount of the deposit. Because of unsatisfactory evidence with respect to the balance in the account as of that date, the trial court denied further recovery thereon.

On March 23, 1953, there was on deposit in the agency's account the sum of $5,487.41. The bank attempted to appropriate the entire amount as a setoff against the agency's personal debt to it. The trial court found that $3,042.33 thereof represented plaintiff's premiums received and deposited by the agency.

Plaintiff's largest claim of $16,013.34 was allowed in the amount of $5,638.51. The full claim represented two checks dated February 26, 1953, drawn by the agency on its account in favor of defendant bank in payment of the agency's indebtedness. The evidence indicated that $5,638.51 of that amount was from premiums belonging to plaintiff and such amount was allowed. There was no evidence as to the source of the balance and it was accordingly disallowed.

The primary question is whether or not the deposits in defendant bank, or such parts thereof as could be identified as representing premiums paid to the agency on plaintiff's insurance policies constituted trust funds.

The Supreme Court of Minnesota, in American Surety Co. of New York v. Greenwald, 223 Minn. 37, 25 N.W.2d 681, held, on facts somewhat similar to those involved here, that an express trust was established between an insurance company and its agent, the proposed relationship being evidenced by a letter from the insurance company to its agent. The Court said, 25 N.W.2d at page 684:

"It seems that after some preliminary discussions relative to the proposed business relationship a letter was directed to defendant by Travelers containing the essential elements of the agreement constituting the basis of the alleged trust relationship between defendant and Travelers. This letter, dated March 2, 1940, reads in part as follows:

"`* * * We will pay to your agency also, a one-third of 20% of the gross premiums, plus an additional 7½% commission on the entire premium.

"`It is understood by this office that as you receive the gross premium from the state, you will in turn deduct your total commission as agreed upon in this letter and that you will then remit the balance to us. We will then pay the commission as agreed to the two other agencies involved.\'"

At page 685 of 25 N.W.2d:

"In holding that the arrangement existing between defendant and Travelers at the time of the transactions in question constitutes a trust arrangement, we are not achieving that result by ignoring the established principles of the law of trusts. The facts here present well establish that defendant received and collected the premiums under and pursuant to clear and definite terms set forth in the

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