Bellevue State Bank v. Coffin

• Decision Date: 02 July 1912
• Parties: BELLEVUE STATE BANK, a Corporation, Appellant v. H. N. COFFIN, Receiver of the IDAHO STATE BANK, a Corporation, Respondent
• Court: Idaho Supreme Court

125 P. 816

22 Idaho 210

BELLEVUE STATE BANK, a Corporation, Appellant v. H. N. COFFIN, Receiver of the IDAHO STATE BANK, a Corporation, Respondent

Supreme Court of Idaho

July 2, 1912

BANKS-LOAN FROM ONE BANK TO ANOTHER-TRUST FUND-TRACING TRUST FUND-RIGHT TO RECOVER.

(Syllabus by the court.)

1. Where B. S. Bank pays H. S. Bank, upon solicitation of H. S Bank, a sum of money to be used by the latter in the ordinary course of business, to be paid back in the future upon the latter bank receiving a shipment of money from another source, such payment of money is a loan, and such transaction creates the relation of debtor and creditor between such banks.

2. Where money is loaned by one bank to another upon false representations which amount to fraud upon the bank loaning the money, the contract of loan may be rescinded upon the ground of fraud, and such loan becomes a trust fund in the hands of the bank or its assignee, and like any other fund if it can be traced and is capable of identification it may be recovered from the assignee of the bank, and is a prior claim as against the general creditors.

3. It is a well-known rule of equity that an owner of property who has been defrauded of the possession or ownership of the same may recover such property from the person who has secured it and that the title of such property does not pass to the taker, but is held in trust, and that the owner has a superior right to such property as against the creditors of the taker; and where it has been used or converted by the taker, the owner of such property should also have a superior right to the value of the same whenever it can be recovered without causing a reduction in the pro rata distribution of the remaining assets among creditors.

4. Where it is shown that H. S. Bank borrows money from B. S Bank upon false representations, and at a time when the H. S. Bank was insolvent, and used said money so borrowed in the ordinary course of business in paying checks, and the evidence fails to show that the estate of the bank was in any way bettered or augmented by reason of the application of such borrowed money, and in the absence of a showing that such money can be traced into specific property or money, such B. S. Bank cannot have its claim against the estate of H. S. Bank in the hands of the receiver declared a prior claim to other general creditors.

5. Where an insolvent bank procures a loan from another bank upon false representations, and such money is to be used in the ordinary course of business of the insolvent bank, and the transaction results in nothing more than an exchange of creditors or the mere cancellation of one liability and the assumption of another, and the money is used in the discharge of an indebtedness, such facts alone are not sufficient to show that the assets of the bank borrowing such money have in any way been increased, or that there has been a betterment of the estate or its assets, or that such estate or its assets have in any way been improved or rendered more valuable.

(AILSHIE, J., dissents from opinion and affirms judgment on other grounds.)

APPEAL from the District Court of the Fourth Judicial District for the County of Blaine. Hon. Edward A. Walters, Judge.

An action to recover upon a debt and have it declared a prior and preferred claim against the assets of an insolvent bank in the hands of a receiver. Affirmed.

Judgment affirmed. Costs awarded to respondent.

Richards & Haga, for Appellant.

A constructive trust or trust ex maleficio arises by implication of law where one party, by fraud and misrepresentation, obtains something of value from another. (Perry on Trusts and Trustees, 6th ed., sec. 171; Pomeroy's Eq. Jur., 3d ed., sec. 155; Wasson v. Hawkins, 59 F. 233.)

The relation of trustee and cestui que trust is not that of debtor and creditor. (Cragie v. Hadley, 99 N.Y. 131, 52 Am. Rep. 9, 1 N.E. 537.)

Trust funds may be followed into the trustee's estate although no particular property or asset can be identified as having been purchased or acquired by the particular funds. (State v. Bruce, 17 Idaho 1, 134 Am. St. 245, 102 P. 831; First Nat. Bank v. Bunting & Co., 7 Idaho 27, 59 P. 929, 1106; State v. Thum, 6 Idaho 323, 55 P. 858; Myers v. Board of Education, 51 Kan. 87, 37 Am. St. 263, 32 P. 658; Kansas State Bank v. First State Bank, 62 Kan. 788, 64 P. 634.)

Sullivan & Sullivan, for Respondent.

When money is deposited in a bank without any understanding that the identical money shall be returned, but that only a like sum of lawful money shall be repaid, the deposit is general, the bank is permitted to use the money in its business, and the relation of debtor and creditor is created by the transaction. (Mut. Acct. Assn. v. Jacobs, 141 Ill. 261, 33 Am. St. 302, 31 N.E. 414, 16 L. R. A. 516; Leaphart v. Com. Bank, 45 S.C. 563, 55 Am. St. 800, 23 S.E. 939, 33 L. R. A. 700.)

There is no difference in principle in the case at bar, where currency or other money is loaned or advanced by one bank to another which is insolvent for use in the borrowing bank, and in a case where a depositor leaves his money with the bank a short time before it suspends. (Corn etc. Bank v. Solicitors etc. Co., 188 Pa. 330, 68 Am. St. 873, 41 A. 536.)

A deposit or loan of money in the ordinary course of business, when the bank is insolvent with knowledge of its officers, passes title, and the relation of debtor and creditor arises, subject, however, to be reclaimed, and the transaction rescinded by reason of the fraud, if the funds can be traced or identified, either in their original or substituted form. If the funds can thus be followed and identified, the bank becomes a trustee ex maleficio. (1 Bolles' Mod. Law of Banking, p. 188; Plano Mfg. Co. v. Auld, 86 Am. St. 794, notes; Richardson v. N. O. Co., 102 F. 780, 42 C. C. A. 619, 52 L. R. A. 67; Corn Bank v. Trust Co., 18 Pa. 330, 68 Am. St. 872, 41 A. 536; Wasson v. Hawkins, 59 F. 233; Quin v. Earl, 95 F. 728; Bayor v. Am. T. & S. Bk., 157 Ill. 62, 41 N.E. 622; Willoughby v. Weinberger, 15 Okla. 226, 79 P. 777; Blake v. St. Sav. Bk., 12 Wash. 619, 41 P. 909.)

Must trace and identify trust funds to obtain a preference. (1 Bolles' Mod. Law of Banking, 188 et seq.; Lowe v. Jones, 192 Mass. 94, 116 Am. St. 225, 78 N.E. 406, 6 L. R. A., N. S., 487, 7 Am. & Eng. Ann. Cas. 553; Plano Mfg. Co. v. Auld, 86 Am. St. 775; Cherry v. Territory, 17 Okla. 221, 89 P. 192, 8 L. R. A., N. S., 1254; Morse on Banks and Banking, 629; Crawford Co. v. Strawn, 157 F. 49, 84 C. C. A. 553, 15 L. R. A., N. S., 1100; 5 Cyc. 568, 622; 3 Am. & Eng. Ency. of Law, 847, 848, note 4; Burnham v. Barth, 89 Wis. 362, 62 N.W. 96; Cavin v. Gleason, 105 N.Y. 256, 11 N.E. 504; State v. Foster, 38 P. 926; Byrne v. Byrne, 113 Cal. 294, 45 P. 536; Shute v. Hinman, 34 Ore. 578, 56 P. 412, 58 P. 882, 47 L. R. A. 265; In re McIntyre & Co., 185 F. 96, 108 C. C. A. 543; Spokane Co. v. Bank, 68 F. 979, 16 C. C. A. 81; Litchfield v. Ballou, 14 U.S. 190, 5 S.Ct. 820, 29 L.Ed. 132; Little v. Chadwick, 151 Mass. 109, 23 N.E. 1005, 7 L. R. A. 570.)

False representations of cashier of bank not sufficient to create trust and give preference. (Venner v. Cox (Tenn. Ch.), 35 S.W. 769.)

It is not a fraud that gives a priority. (Quin v. Earle, 95 F. 731.)

Payment of debts is not augmentation of assets. (Slater v. Oriental Mills, 18 R. I. 352, 27 A. 443; Monatuck Silk Co. v. Flanders, 87 Wis. 237, 58 N.W. 385; City of Lincoln v. Morrison, 64 Neb. 822, 90 N.W. 908, 57 L. R. A. 885; Spokane Co. v. First Nat. Bank (Wash.), 68 F. 979, 16 C. C. A. 81; Jones v. Chesebrough, 105 Iowa 303, 75 N.W. 100; Insurance Co. v. Caldwell, 59 Kan. 156, 52 P. 440; Kan. St. Bank v. First St. Bank, 62 Kan. 788, 64 P. 636; Pearson v. Haydel, 90 Mo.App. 253; Bircher v. Walther, 163 Mo. 461, 63 S.W. 691; Mult. Co. v. Ore. Nat. Bank, 61 F. 914; Willoughby v. Weinberger, 15 Okla. 226, 79 P. 777; B. M. W. Co. v. P. P. M. Co., 187 F. 590, 109 C. C. A. 420; Ferchen v. Arndt, 26 Ore. 121, 46 Am. St. 603, 37 P. 161, 29 L. R. A. 664.)

STEWART, C. J. Davis, District Judge, concurs. AILSHIE, J., concurring in part and dissenting in part.

OPINION

STEWART, C. J.

On August 25, 1910, Leo Cramer, president and representative of the Idaho State Bank, a banking corporation organized under the laws of the state of Idaho and doing business at Hailey, Idaho, called upon the Bellevue State Bank at Bellevue, Idaho, and informed C. W. Wilson, cashier of said bank, that the Idaho State Bank had a shipment of $ 5,000, which shipment should have arrived on the train reaching Hailey on that day, and by reason of such shipment not arriving, the Idaho State Bank was in need of $ 2,500 in currency for temporary use until said shipment should arrive, which should be on the following day, and that said Idaho State Bank would upon the arrival of said shipment return said $ 2,500. Upon this statement the Bellevue State Bank, through its cashier, C. W. Wilson, turned over to Leo Cramer, for the use of the Idaho State Bank, $ 2,500 in currency. This currency was placed in the Idaho State Bank and used by said bank in the ordinary course of business until the 31st day of August, 1910, when the bank was closed and a receiver appointed therefor. This currency was used with other cash for the purpose of paying checks drawn by depositors, and when the receiver took charge of the bank there was in the bank $ 643.75, of which $ 85.00 was in currency, and no part of which could be identified as a part of the $ 2,500 obtained by the Idaho State Bank from the Bellevue State Bank.

After the bank failed on the 31st day of August, 1910, H. N Coffin, the respondent, was appointed receiver of the Idaho State Bank, and this action was brought demanding that the $ 2,500...