Boone County Nat. Bank v. Latimer

• Decision Date: 21 March 1895
• Citation: 67 F. 27
• Parties: BOONE COUNTY NAT. BANK v. LATIMER et al.
• Court: U.S. District Court — Western District of Missouri

67 F. 27

BOONE COUNTY NAT. BANK v. LATIMER et al.

United States Circuit Court, W.D. Missouri, Central Division.

March 21, 1895

This is a bill in equity to have claims of the complainant bank against the respondent bank declared a trust fund, and for preference in the distribution of the assets in the hands of the receiver. The case is submitted upon an agreed statement of facts, which is substantially as follows: (1) The complainant, on March 30, 1894, sent to the First National Bank of Sedalia, Mo., for collection and remittance a note it held against Jenney Bros. for $1,000 due April 8 1894. Jenney Bros. paid on this note, on the 2d day of April $787.69, which the First National Bank placed to the credit of the complainant, instead of remitting, as it was instructed to do. (2) The complainant in like manner sent to the First National Bank for collection a note it held for the sum of $1,500 against Henry Mueller and others, which was due January 2, 1894, and it was so sent for collection on the 29th day of December, 1893. On the 1st day of May, 1894, and three days before the bank failed, Mueller paid on this note the sum of $700, which the defendant bank placed to the credit of the complainant on its books, instead of remitting, as it had been directed. (3) That both of these notes were sent to the First National Bank, with instructions to collect the same, and remit to the complainant at Columbia, Mo. (4) When the said collections were made, the moneys received therefor were placed with other funds, constituting the cash assets of the bank, and to the extent thereof went to increase the volume of its assets and went into its business operations. (5) That when the receiver took possession of the said First National Bank he came into possession of $495.29 in money, and between the dates of the payments to it for complainant as aforesaid and the said 4th day of May, 1894, the day the bank closed, other large sums of money, besides these mentioned, had been paid into said bank, and distributed by it in the usual and ordinary course of its business operations, and that since the receiver had taken possession of the assets of the bank he has realized therefrom a large sum of money, and more than amply sufficient to pay all preferred claims against the bank. (6) Neither of the sums so collected by the defendant bank, or any part thereof, has been paid to the complainant.

Johnson & Montgomery, for complainant.

William S. Shirk, for defendant.

PHILIPS District Judge (after stating the facts).

It is not deemed important, even if the time were at my command, to enter into a review of the multitude of authorities bearing upon the vexed question discussed by counsel, as to the right of preference in the complainant. By the agreed statement of facts, the Sedalia bank was constituted by the Boone county bank its agent solely for the collection of the notes, and to remit the proceeds when collected to the principal. No authority was given to the agent to place such proceeds in its bank to the credit of the principal, so as to establish between them the relation of depositor and depositary, or that of creditor and debtor. The thing done by the Sedalia bank was a clear breach of trust,-- a diversion of a trust fund,-- whereby it became a trustee ex maleficio. The question to be decided is, does the fact that the precise fund thus diverted cannot be traced in kind and seized physically, or the fact that the precise fund cannot be traced into some other particular species of property into which it has been absorbed, destroy the right of the cestui que trust to a preference over the general creditors to have its claim first paid out of the general assets of the insolvent estate, when it appears, as in this case, that the trust fund has gone to swell the amount of such assets, and there are ample funds remaining to satisfy this trust demand? The essential principle involved was grasped by Judge Story in this text:

'An agent is bound to keep the property of the principal separate from his own. If he mixes it up with his own, the whole will be taken, both at law and in equity, to be the property of the principal, until the agent

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