Berg v. Union State Bank

Decision Date17 January 1930
Docket NumberNo. 27452.,27452.
Citation179 Minn. 191,229 N.W. 102
PartiesBERG v. UNION STATE BANK.
CourtMinnesota Supreme Court

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.

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 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 owner, there is a sharp division in the authorities. The more numerous decisions and weight of authority appear to be that in such case the bank may apply the fund or deposit in payment of a debt owing to it by the trustee or agent individually, without thereby becoming liable to the true owner.

A substantial number of the courts, however, have adopted and follow a modification of this rule, referred to as the equitable rule. That rule is that a bank, even though it has no express or implied knowledge of the true ownership of the fund deposited in his own name by the trustee or agent, cannot apply such fund to the individual debt of such trustee or agent, where the lack of knowledge has not resulted in any detrimental change in the bank's position and no superior equities have arisen in its favor. Bank of the Metropolis v. New England Bank, 1 How. 234, 11 L. Ed. 115; Id., 6 How. 212, 12 L. Ed. 409; Wilson & Co. v. Smith, 3 How. 763, 11 L. Ed. 820; Beaver Boards Cos. v. Imbrie & Co. (D. C.) 287 F. 158; Fulton Nat. Bank v. Hosier (C. C. A.) 295 F. 611; Commercial Credit Co. v. Continental Trust Co. (C. C. A.) 295 F. 615; In re Steele-Smith Dry Goods Co. (D. C.) 298 F. 812; Porter v. Roseman, 165 Ind. 255, 74 N. E. 1105, 112 Am. St. Rep. 222, 6 Ann. Cas. 718; Burtnett v. First Nat. Bank, 38 Mich. 630; Cady v. South Omaha Nat. Bank, 46 Neb. 756, 65 N. W. 906; Id., 49 Neb. 125, 68 N. W. 358; Union Stockyards Nat. Bank v. Campbell, 2 Neb. (Unof.) 72, 96 N. W. 608; Brady v. American Nat. Bank, 120 Okl. 159, 250 P. 1006; Shotwell v. Sioux Falls Sav. Bank, 34 S. D. 109, 147 N. W. 288, L. R. A. 1915A, 715; Gibbs v. Commercial & Sav. Bank, 50 S. D. 134, 208 N. W. 779; Thompson v. Commercial & Sav. Bank, 50 S. D. 154, 208 N. W. 780; Davis v. Panhandle Nat. Bank (Tex. Civ. App.) 29 S. W. 926; First Nat. Bank v. First State Bank (Tex. Civ. App.) 252 S. W. 1089. The cases in this state most closely in point are Platts v. Metropolitan Nat. Bank, 130 Minn. 219, 153 N. W. 514; and Agard v. People's Nat. Bank, 169 Minn. 438, 211 N. W. 825, 50 A. L. R. 629. The Agard Case places this state fairly in line with the courts applying the equitable rule. It is in harmony with our decisions as to the tracing and recovery of trust funds. Stein v. Kemp, 132 Minn. 44, 155 N. W. 1052; Stabbert v. Manahan, 163 Minn. 214, 203 N. W. 611; Blummer v. Scandinavian Am. Bank, 169 Minn. 89, 210 N. W. 865; Milne v. Capital T. & S. Bank, 170 Minn. 66, 211 N. W. 954; Adams v. Farmers' State Bank, 176 Minn. 108, 222 N. W. 576.

Under the first rule stated, the bank is liable to the true owner if, with express or implied notice of his ownership, it applies the fund to the individual debt of the agent or trustee. Under the equity rule, the bank is also liable to the true owner, whether or not it had express or implied notice of his ownership, if, without changing its position so as to acquire equal or superior equities as against the owner, it seeks to offset the individual debt of the agent or trustee against the fund. Whether the indebtedness to which the fund is sought to be applied is an overdraft, account, or promissory note, is not important.

The test is whether the bank has so changed its position that it has acquired equal or...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT