Behm v. Baird

• Decision Date: 01 August 1930
• Docket Number: No. 5760.,5760.
• Citation: 231 N.W. 876,59 N.D. 733
• Parties: BEHM v. BAIRD.
• Court: North Dakota Supreme Court

59 N.D. 733

231 N.W. 876

BEHM

v.BAIRD.

No. 5760.

Supreme Court of North Dakota.

Aug. 1, 1930.

Syllabus by the Court.

Where a cashier's check is placed in a bank as a general deposit, received by the bank as cash, credited to the account of the depositor who has the right to check against it, such check becomes the propertyof the bank, and the relationship of debtor and creditor is created between the bank and the depositor.

Syllabus by the Court.

Assuming said bank was hopelessly insolvent at the time said check was deposited, and this was known to the officers of the bank, the taking of said check from the depositor was a fraud upon him.

Syllabus by the Court.

In order to give such a depositor preference over other creditors and to have a trust in his favor impressed upon the funds found in the bank on its closing, it is necessary for the depositor to trace the proceeds of his check into such fund.

Syllabus by the Court.

Where a depositor's check is received by an insolvent bank under the circumstances hereinbefore stated, and such check is used to pay the indebtedness of the bank in a clearance transaction with other banks, it cannot be said that such check augmented the assets of the insolvent bank.

Syllabus by the Court.

In the instant case there was a certain amount of cash on hand in the bank when it closed; but the record shows such fund was the proceeds of a transaction other than the one in which the plaintiff's check was involved. The plaintiff, therefore, has no claim against such fund superior to that of any other creditor.

Appeal from District Court, Grand Forks County; P. G. Swenson, Judge.

Action by William Behm against L. R. Baird, as receiver of the Bank of Niagara. Judgment for plaintiff, and defendant appeals.

Reversed, and case dismissed.

Geo. A. Bangs, of Grand Forks, for appellant.

A. W. Ponath, of Wahpeton, for respondent.

BURR, J.

On Saturday, November 19, 1927, the Bank of Niagara was open for business, sold drafts, received deposits, and paid checks. On that day the plaintiff made a general deposit of a cashier's check for $500, issued to him by the Northwestern National Bank of Grand Forks, and then gave a check to the Security Bank for this amount in payment of a debt. The Bank of Niagara was indebted to the Northwestern National Bank for prior indebtedness amounting approximately to $9,000, but had a credit balance in that bank on open account of $835.45. The same day the Bank of Niagara remitted this cashier's check, and other items of commercial paper, in all $1,605.12, to the Northwestern National Bank “for collection and credit,” and the account was so credited on November 21 before the Bank of Niagara closed. Thus the drawer paid the check. On the 19th the Bank of Niagara issued drafts on the Northwestern National Bank for $1,812.76, as shown by the books of the bank offered in evidence by the plaintiff. Two of these checks were as follows: To the Security State Bank of Niagara, $1,547.50, as “clearings”; to the Northwestern National Bank, $105.13. These two drafts came to the Northwestern National Bank about the same time as the remittance, and were charged to the account, leaving a credit balance of $787.50. The record does not show whether these two drafts and the remittance were in the same letter, or were separate transactions, or whether the Security State Bank sent in its draft at a different time, but these drafts were received and paid before the Bank of Niagara closed. That same day, by letter or telephone, the Bank of Niagara called on the Northwestern National Bank for $500 in currency, which was shipped. Thus its credit on the books of the Grand Forks bank was reduced to $287.57. There was nothing whatever to indicate that when the Niagara bank remitted the cashier's check it required the Grand Forks bank to send cash in lieu thereof. The two transactions are totally unconnected so far as the record shows.

The Bank of Niagara evidently sold additional drafts, or in some other way reduced its credit, for on its closing its books show a balance to its credit in the Northwestern National Bank of $11.30 only. The record does not show whether these additional drafts or reductions were purchased by check or cash.

On the evening of November 21, the Bank of Niagara closed its doors, having on hand $335.65 in cash. The Northwestern National Bank applied the credit of $287.57 on the $9,000 indebtedness. Later defendant, Baird, was appointed receiver of the Bank of Niagara.

The Security State Bank of Niagara could not cash plaintiff's check and returned it to him. Plaintiff demanded from the receiver the return of his money, and on refusal of the demand brought this action to impress a trust on the cash found in the bank. The lower court rendered judgment in his favor for $335.65, and the receiver appeals.

Plaintiff asks the receiver to give him a preferred claim because of fraud, claiming the Bank of Niagara was hopelessly insolvent and that the officers knew it.

Appellant claims there is no sufficient proof showing that hopeless insolvency of the bank was known to its officers on November 19th, nor any competent proof showing the books, examined in the trial and from which much of the evidence was received, are the books of the bank. Assuming the position of the respondent on these points, the issue becomes one of fact.

[1] This deposit made by plaintiff was a general one; the check being accepted as cash, a deposit slip made out, and credit given the plaintiff so that he might check against it. The check became the property of the bank, and the relation of creditor and debtor was created. Shuman v. Bank, 27 N. D. 599, 147 N. W. 388, L. R. A. 1915A, 728;Citizens' Bank v. Iverson, 30 N. D. 497, 153 N. W. 449;Friberg et al. v. Cox, 97 Tenn. 550, 37 S. W. 283;Acme Hay & Mill Feed Co. v. Metropolitan National Bank, 198 Iowa, 1337, 201 N. W. 129.

[2] Plaintiff says it was a fraud on him to take his check. A claim founded on fraud is not by that fact alone entitled to priority over other claims. “The accepting of a deposit of trusts by a bank irretrievably insolvent constitutes such a fraud as entitles the depositor to reclaim his trusts or their proceeds” (Widman v. Kellogg et al., 22 N. D. 396, 133 N. W. 1020, 1025, 39 L. R. A. [N. S.] 563;St. Louis R. R. Co. v. Johnston, Receiver, 133 U. S. 573, 10 S. Ct. 390, 33 L. Ed. 683); but, as Judge Taft says in City Bank v. Blackmore, 75 F. 771, 773, 21 C. C. A. 514, 516, “It is only where, by the rescission of the contract out of which the claim arises, on the ground of fraud, the specific thing parted with or its proceeds can be sufficiently identified to be returned, that fraud seems to give a priority of distribution.”

[3] In order to impress a trust upon the money which came into the hands of the receiver, the plaintiff must trace the funds which he deposited so as to prove that this cash is the proceeds of the cashier's check which he deposited. See Nat. Bank v. Life Ins. Co., 104 U. S. 54, 26 L. Ed. 693. He “may follow such property and reclaim it in any form into which it may have been changed, providing identification is possible. * * *” Merchants' Bank of Napoleon v. Schatz et al. (N. D.) 230 N. W. 18.

[4] Even though insolvency of the bank was known to the officers at the time the deposit was made, so that the Bank of Niagara could be said to be a trustee of the fund, that fact alone does not give the plaintiff a preference, unless he can trace and recover his property. Atkinson v. Rochester Printing Co., 114 N. Y. 168, 21 N. E. 178. When the deposit became mingled with the general funds of like character in the Grand Forks bank belonging to the Bank of Niagara, the means of identification failed, and the money could not be reclaimed. Blake v. State Savings Bank et al., 12 Wash. 619, 41 P. 909, 910;Wilson v. Coburn, 35 Neb. 530, 53 N. W. 466. Had the deposit been delivered for a special purpose, it would have been always a trust fund, and no title would have passed to the Bank of Niagara; but...