Montagu v. Pacific Bank

• Decision Date: 24 June 1897
• Docket Number: 12,108.
• Citation: 81 F. 602
• Parties: MONTAGU et al. v. PACIFIC BANK et al.
• Court: U.S. District Court — Northern District of California

81 F. 602

MONTAGU et al. v. PACIFIC BANK et al.

No. 12,108.

United States Circuit Court, N.D. California.

June 24, 1897

E. S Pillsbury for complainants.

Sawyer & Burnett, for defendants.

MORROW Circuit Judge.

This is a bill in equity against an insolvent banking corporation to declare a trust, and recover the sum of $5,000 as a special deposit. The facts are these:

Samuel Montagu & Co., London bankers, cabled the Pacific Bank, in San Francisco, June 20, 1893, as follows:

'Pay by telegram to Puget Sound National Bank, Seattle Washington, five thousand- dollars, a/c of William Cochrane. We remit by cable to National Bank of Commerce N. York, for your a/c, $5,000.'

The money was deposited in the National Bank of Commerce, in New York, on the same day, but was never transmitted by the Pacific Bank to the Puget Sound National Bank, at Seattle, state of Washington. On the 22d day of June, 1893, the Pacific Bank suspended payment and closed its doors, and thereafter refused to pay its depositors or other creditors except in the pro rata distribution of the property and assets of the corporation in the process of liquidation, under the management of the board of directors, in accordance with the laws of the state. It is admitted that there was more than $5,000 in the vaults of the Pacific Bank, belonging to the bank, from June 19, 1893, until the doors were closed, on the 22d of June, 1893. It is contended, on the part of the complainants, that the money involved in this transaction was received by the Pacific Bank for a specific purpose, and not to be checked out or loaned or otherwise used by the bank; that the money constituted a trust fund, and did not become a part of the general assets of the bank, and, not having been applied to the purpose for which it was received, it should be returned to the depositor. The defendants contend that the money remitted by complainants was placed to the account of the Pacific Bank in the National Bank of Commerce, at New York; that it was not sent directly to the Pacific Bank, but became a part of the account between the two banks, and the identity of the deposit was lost; and that, therefore, the complainants should be admitted to share only with the other creditors in the pro rata distribution of the assets of the bank. The National Bank of Commerce was the correspondent, in New York, of the Pacific Bank. It appears from the evidence that Wells, Fargo & Co., in San Francisco, received a cablegram from the complainants on July 10, 1893, as follows:

'London, July 10th, '93.

'On June 20th we telegraphed Pacific Bank to pay by telegram to Puget Sound National Bank, Seattle, Washington, five thousand dollars. William Cochrane. We deposited five thousand dollars with National Bank Commerce in payment. Pacific did not pay. We claim that it was specific payment against deposit, and money therefore ours. Please claim return from Pacific, who had not then suspended, and who now offer no explanation. Write.'

Henry Wadsworth, the cashier of Wells, Fargo & Co. at San Francisco, took this cablegram, immediately after its receipt, to the Pacific Bank, and exhibited it to McDonald, the acting president, who acknowledged the receipt of complainant's cablegram of June 20th, and gave as a reason for the failure of the bank to make the payment as directed that they had not received the confirmation from the agent of the bank in New York; but he admitted that it was customary, on receipt of such a telegraphic transfer draft, to make the disbursement in accordance with the directions of the order, without waiting for the agent's confirmation of the deposit. Subsequently Wells, Fargo & Co. received a letter from complainants, dated London, July 13, 1893, containing, among other things, the following:

'As explained to you in our cable, we asked this bank, on June 20, to pay by telegram to the Puget Sound Nat. Bank, Seattle, Washington, $5,000, for a/c William Cochrane, depositing to meet it the same amount with the Nat. Bk. of Commerce, New York, same as on previous occasions. Upon investigation, we find that this money was not paid to the Puget Sound Nat. Bank, altho' the amount was withdrawn from New York. Our object is now to point out to the Pacific Bank that this amount of $5,000 cannot be looked upon as part of our balance with them in account, but that it was to be used for the specific purpose indicated by us, and consequently repayable in full, especially since the transaction took place some days before the bank failed.'

This letter was also shown to McDonald by Wadsworth, who testified that McDonald made no denial as to anything therein set forth. Wadsworth testified further that he had several conversations with the officers of the bank respecting complainant's claim, and it was not denied by them that the Pacific Bank had received the $5,000 from the complainants, to be remitted to the Puget Sound National Bank, at Seattle, Wash. It appears that the complainants had a deposit account with the Pacific Bank at this time, and that there was a balance to their credit in this account amounting to $3,902.15. In a statement received by Wadsworth from the officers of the bank, showing the state of complainants' account with the bank, this balance was shown as of the date of June 22, 1893, when the bank suspended. Then followed an entry, under date of July 14th, showing the deposit in New York on June 21st of $5,000.

It is clear from this evidence that the bank had received, through its agent in New York, prior to its suspension, the deposit in question for transmittal to the Puget Sound National Bank, and that it was a special deposit, made for a specific purpose, and in the nature of a bailment. All deposits made with bankers may be divided into two classes, namely, those in which the bank becomes bailee of the depositor, the title to the thing deposited remaining with the latter; and the other kind of deposit, of money peculiar to banking business, in which the depositor, for his own convenience, parts with the title to his money, and loans it to the banker. Marine Bank v. Fulton Bank, 2 Wall. 252, 256. In Peak v. Ellicott, 30 Kan. 156, 1 Pac, 499, a bank received money from the maker of a note originally given to the bank, before it was due, to pay it to the holder and return the note, but appropriated the money and failed to pay the note. It was held that, upon the subsequent failure of the bank, the maker could reclaim the money from the bank's assignee in trust for creditors. Horton, C. J., thus stated the facts and the law:

'The question in this case is whether a trust in favor of the plaintiff is impressed upon the $782.50 delivered to the cashier of the Riley County Bank on November 22, 1881, for the purpose of paying the note of plaintiff executed to the bank, but at that time owned and held by the Harrison National Bank of Cadiz, in Ohio. When the bank, through its cashier, accepted the $782.50, it was not paid by the plaintiff as a deposit, nor accepted by the latter as a deposit nor was the relation of debtor and creditor between the bank and the plaintiff created by the transaction. On the other hand, as respects this specific sum, the relation between the plaintiff and the bank must be regarded as that of principal and agent. After the bank received this sum to satisfy the note of the plaintiff, the bank held the money in a fiduciary capacity. If the money was not applied, according to the understanding of the parties, to the satisfaction of the note, it should have been returned to the plaintiff. It was not deposited to be checked out or to be loaned or otherwise used by the bank. In law, the bank held it as a trust fund, and not as the assets of the bank. The defendant, as assignee of the bank, succeeds to all the rights of the bank; but as such assignee he has no lawful authority to retain a trust fund in his hands belonging to the plaintiff, and which the bank, at the time of receiving the same, promised and agreed to apply in payment of plaintiff's note. As the money was a trust fund, and never belonged to the bank, its creditors will not be injured if it is turned over by the assignee to its owner. Even if the trust fund has been mixed with other funds of the bank, this cannot prevent the plaintiff from following and reclaiming the fund, because, if a

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