American Can Co. v. Williams

• Decision Date: 07 March 1910
• Docket Number: 131.
• Citation: 178 F. 420
• Parties: AMERICAN CAN CO. v. WILLIAMS.
• Court: U.S. Court of Appeals — Second Circuit

178 F. 420

AMERICAN CAN CO. v. WILLIAMS.

No. 131.

United States Court of Appeals, Second Circuit.

March 7, 1910

The plaintiff is a manufacturing corporation organized under the laws of the state of New Jersey and doing business in the state of New York and elsewhere.

The defendant is the receiver, appointed by the Comptroller of the Currency, of the Fredonia National Bank, which, prior to June 19, 1905, carried on business in Fredonia, N.Y.

Between May 17, 1905, and June 14, 1905, the plaintiff forwarded to said bank for collection certain sight drafts on two local corporations aggregating $28,929.32, and having attached thereto bills of lading for shipments made by the plaintiff to such corporations. Said bank collected said drafts from the corporations upon which they were drawn and delivered the accompanying bills of lading, but never accounted to the plaintiff for any of the moneys so collected. Said drafts may, with respect to their method of collection and manner of payment, be classified as follows: (1) Drafts paid by the drawees' check on outside banks made payable to the Fredonia Bank and subsequently paid by such outside banks directly to the defendant as receiver. (2) Drafts paid by the drawees' checks on outside banks made payable to the Fredonia Bank and paid by the former to the latter before the appointment of the receiver. (3) Drafts paid by the drawees out of their accounts as depositors of the Fredonia Bank; the amounts thereof being charged against such accounts. (4) Drafts paid by the drawees' checks on outside banks made payable to the Fredonia Bank and indorsed and delivered by it to the Merchants' Exchange National Bank in New York City, and credited by such bank to the Fredonia Bank.

'At all the times mentioned in the complaint prior to the 20th day of June, 1905, the assets of the Fredonia National Bank and the assets which came into the defendant's hands as receiver, and which are now in his hands, exceeded the amount of plaintiff's claim. ' (Stipulation of Facts.)

The plaintiff sought in this action to recover the total amount of said drafts, and claimed that it was entitled to the payment of the same out of any assets of said bank before the defendant as receiver should make any disposition thereof among creditors.

The Circuit Court rendered judgement for the plaintiff for $1,094.96, being the amount of the proceeds of the first class of drafts which it held came into the hands of the receiver. The court also held that the plaintiff, with respect to the balance of its demands, was a general creditor only. The plaintiff has brought this writ of error.

Kenefick Cooke & Mitchell (James McC. Mitchell, for counsel), for plaintiff in error.

Rogers Locke & Babcock (Louis L. Babcock, of counsel), for defendant in error.

Before LACOMBE, COXE, and NOYES, Circuit Judges.

NOYES Circuit Judge (after stating the facts as above).

The relation of cestui que trust and trustee undoubtedly existed between the plaintiff and the Fredonia Bank. The bank violated every duty which it owed the plaintiff. The proceeds of the plaintiff's drafts held by it or its agents constituted trust funds which might be followed into the hands of the receiver if they could be traced.

There is no difficulty in following the proceeds of the first class of drafts. The moneys ($1,016.72) which the Lake Shore Bank received were impressed with a trust in favor of the plaintiff, and when they were paid over to the receiver the trust still attached, and the receiver was bound to account for them. So the proceeds of the draft ($1,544.48) which the Columbia Bank received were trust funds, and the receiver was bound to account for the balance thereof ($77.23), which was paid over to him.

After the Columbia Bank had received the proceeds of said draft and had placed the same to the credit of the Fredonia Bank, the latter drew out all of the deposit with the exception of said small balance. Subsequently, however, other moneys of the Fredonia Bank were received by the Columbia Bank, so that the total amount which it paid the receiver was $750.11. But these later deposits were in no way connected with the proceeds of the plaintiff's drafts and no trust attached to them. It is well settled that, where trust funds are placed in a bank account, the amount which the plaintiff can recover must be limited to the lowest balance existing between the time of the deposit and the receivership. Or, as stated by the Circuit Court of Appeals for the Sixth District in Board of Commissioners v. Strawn, 157 F. 49, 51 84 C.C.A. 553, 15 L.R.A. (N.S.) 1100:

'It is therefore a part of the rule applicable to following misappropriated moneys in a bank account that, if at any time during currency of the mingled account the drawings out had left a balance less than the trust money, the trust money must be regarded as dissipated except as to this balance; the sum subsequently added to the account from other sources not being attributed to the trust fund.'

The Circuit Court, therefore, properly gave the plaintiff judgment for the moneys received by the receiver from the Lake Shore Bank and the remainder of the fund-- but only that remainder-- received from the Columbia Bank.

But...