Berg v. Union State Bank

• Decision Date: 28 February 1930
• Docket Number: No. 27452.,27452.
• Parties: BERG v. UNION STATE BANK.
• Court: Minnesota Supreme Court

179 Minn. 191
229 N.W. 102

BERG
v.
UNION STATE BANK.

No. 27452.

Supreme Court of Minnesota.

Jan. 17, 1930.
On Reargument Feb. 28, 1930.

Appeal from District Court, Hennepin County; Albert Johnson, Judge.

Action by John G. Berg against the Union State Bank. Judgment for plaintiff, and defendant appeals. Reversed, and remanded for new trial.

Syllabus by the Court

Where an agent or trustee deposits trust funds in his own name in a bank, and the bank has express or implied notice that the funds are trust funds or owned by another, it cannot apply such funds to the individual indebtedness owing to it by the agent or trustee.

Where the bank receives and retains such funds without notice or knowledge of their true ownership or trust character, it is not relieved from liability therefor to the true owner by reason of the fact that it has applied the funds to an indebtedness owing to it by the agent or trustee, unless, by reason thereof, it has so changed its position that it has acquired equities equal or superior to the rights of the owner.

Trust funds do not lose their character by the mere fact that they are deposited in a bank, in his own name, by an agent or trustee.

The evidence presented questions of fact as to whether the funds were applied upon an overdraft of the agent and whether the bank had changed its position and acquired equities such as to prevent recovery by plaintiff.

[229 N.W. 102]

Paul J. Marwin, of Minneapolis, for appellant.

John Lind, of Minneapolis, for respondent.

OLSEN, C.

Action to recover the proceeds of four county warrants, owned by plaintiff and collected by defendant. A verdict was directed by the court in favor of plaintiff, and defendant appeals from the judgment entered thereon.

Plaintiff purchased the warrants from or through Stevens & Co., a bond and brokerage house in Minneapolis, in July, 1921. For brevity, Stevens & Co. will hereafter be referred to as the company. On February 9, 1922, the company notified plaintiff that the county auditor of Richland county, Mont., the county issuing the warrants, was ready to pay them, requested plaintiff to bring them to the company's office in Minneapolis, agreed to forward them to Montana for collection, and, as soon as payment was received, to then pay over the proceeds to plaintiff. Pursuant to this agreement, plaintiff then delivered the warrants to the company for collection. The company was a customer of and had a checking account in the defendant bank. On February 23, 1922, it attached to the warrants

[229 N.W. 103]

a draft on a local Montana bank, in its own favor, for the amount thereof, took the warrants and draft to the defendant, made out a deposit slip in its own name, delivered the warrants and draft to the bank, and received credit in its checking account for the amount. The deposit credit was given by the bank on the usual condition that, if the warrants and draft were not paid, the amount credited would be charged back to the company. The bank then forwarded the warrants and draft for collection to the Montana bank. They were paid and the proceeds, $3,772.72, were received by defendant on March 8, 1922. The company failed to pay any part of these proceeds to plaintiff. Demand was thereafter made by him upon the defendant for the warrants or proceeds thereof and refused.

The defense interposed is that the defendant bank received the warrants and draft from the company and credited it with the proceeds thereof in good faith and without notice or knowledge of plaintiff's ownership of or interest in the warrants or proceeds, and that, before it received any such notice or information, it had paid over to the company, or paid out on checks of the company, the proceeds of the warrants in the regular course of its banking business.

1. The question of the liability of a bank to the true owner for funds deposited therein in his individual name by a trustee, or agent of the owner, has been considered in numerous cases in many jurisdictions. The notes to the cases of Arnold v. San Ramon Valley Bank, 13 A. L. R. 320,Cable v. Iowa State Savings Bank, 31 A. L. R. 748, and Agard v. People's National Bank, 50 A. L. R. 629, give a comprehensive view of the holdings of the different courts.

It is uniformly held that, if the bank has notice or knowledge of the true ownership of the fund, or if it has knowledge of facts and circumstances sufficient to require inquiry on its part, which inquiry, if made, would have disclosed the true ownership, it cannot apply the fund to an individual indebtedness owing to it by the agent or trustee depositing the same. Rodgers v. Bankers National Bank, 229 N. W. 90, file 27457, 27458, in this court.

2. When it comes to the question of whether the bank, where it has no notice or knowledge of the true ownership of the fund and no notice of circumstances calling for inquiry, can apply the fund to an indebtedness owing to it by the trustee or agent individually, and thereby escape liability to the true...