Cent. Nat. Bank of Lincoln v. First Nat. Bank of Gering

• Decision Date: 24 May 1927
• Docket Number: No. 25214.,25214.
• Citation: 115 Neb. 444,214 N.W. 75
• Parties: CENTRAL NAT. BANK OF LINCOLN v. FIRST NAT. BANK OF GERING.
• Court: Nebraska Supreme Court

115 Neb. 444

214 N.W. 75

CENTRAL NAT. BANK OF LINCOLN

v.FIRST NAT. BANK OF GERING.

No. 25214.

Supreme Court of Nebraska.

May 24, 1927.

Concurring opinion.

For majority opinion, see 213 N. W. 745.

EBERLY, J. (concurring with the majority).

In this case we find a division of the court. This situation we find reflected in the two conflicting views here presented. It seemed to the writer that a somewhat more detailed recital of the facts out of which the controversy arose than that set forth in either majority or minority opinion might be of assistance, not for the contradiction of either, but rather as supplementary to both.

All agree that the First National Bank of Gering (hereafter called the Gering bank) received from the Central National Bank (hereafter called the Lincoln bank) for “collection and return” a note of $714 and accrued interest, signed by J. L. Moore, a note of $1,537.50, signed by Henry T. Pfenning, and a note of $1,600, signed by Fred Miller. It is not questioned but what the Gering bank was, and is, an insolvent institution, and is now in charge of a federal receiver. While the extent of its insolvency may not definitely appear from the record before us, for the purpose of this discussion we will assume that its dividends to general creditors will not exceed 40 per cent.

Coming to the specific transaction out of which this litigation arose, it may be said that Moore and Pfenning were depositors of the Gering bank. After that bank had received the notes above described, on December 12, 1923, Pfenning's deposit account therein, then a credit balance amounting to $2,849.13, was charged with his note of $1,537.50 which was then past due. It cannot be gainsaid that for a banker to charge a past-due note of the maker to the deposit account of the maker is proper banking practice, and that thereafter notes thus charged are the property of the maker.

On December 20, 1923, Moore's deposit, then a credit balance of $1,214.73, was charged with $715.18, the amount of his note above referred to. Likewise the note thus charged became the property of Moore. Corresponding credits were given by the Gering bank in the account of the Lincoln bank as the same appears in the books of that institution. When we examine the effects of the transaction, above outlined, upon the assets of the bank we find it to be nil. In other words, if it be conceived that immediately prior to each of these transactions, each piece of money, including pennies, nickels, dimes, quarters, halves, dollars, gold, paper, all cash items, in the bank till, personal property of every kind and description, and all real estate of the Gering bank had been branded and given an identifying number when these transactions were concluded, not a single number would be missing, nor would any be added. The physical properties thus constituting the actual assets of the bank, in possession of that institution, would be neither different or other at the conclusion of the transactions referred to than they were at their commencement.

It is to be remembered that the receipt of the notes above mentioned by the Gering bank, under the terms of the “Coll. and Ret.” slip, imposed the duty to collect in “cash or actual equivalent.” It could not then remit because it lacked cash. When the transactions between it and the makers of these obligations had been completed, the evidence affirmatively established it had failed to receive any “cash or the legal equivalent” thereon, out of which to satisfy the Lincoln bank. Therefore, its inability to comply with its duty still continued, and this condition remained when the federal receiver took possession of its assets.

True, the Gering bank, with the property of the Lincoln bank, paid and discharged a definite portion of its pre-existing indebtedness. In so doing, two notes passed out of its possession to its general creditors who received them in payment of their dues. It cannot be said that the notes in question, thus made use of thereafter, were either in the Gering bank, or form any part of its assets.

Considered as a book transaction, as reflected by the books of the Gering bank, its effect was that as theretofore the Gering bank had been indebted to Moore in the sum of $716.18, and to Pfenning in the sum of $1,537.50, which indebtedness was worth not to exceed forty cents on the dollar, it now owes the Lincoln bank $2,253.68, likewise actually worth forty cents on the dollar. But Moore and Pfenning now have the notes which were originally of the value of $2,253.68.

On the other hand, no one questions the fact that the Gering bank had no right to convert these notes to its own use, and no right to insist upon the Lincoln bank accepting the credit thus given. This credit the Lincoln bank rejects. It now seeks a preference against the assets of the Gering bank based on this transaction.

The third note, that of Fred Miller, for the sum of $1,600 and interest, was not found by the receiver when he went into possession of the Gering bank. It does not appear to have been in this bank at the time of the closing of its doors. The evidence offered by the appellee, the Lincoln bank, disclosed that probably it had been sold to one Winslow, who was a depositor of the Gering bank. The witness, whose deposition was taken, could not recall how the matter was handled, and could not state whether the Gering bank received any property whatsoever, save and except possibly a check upon itself.

It must be conceded, however, as to the last transaction, there is nothing in the record which discloses affirmatively that the Gering bank received or had in its possession at the time it failed any property resulting from, or traceable to, this Miller transaction.

It has been suggested that Peters v. Bain, 133 U. S. 670, 10 S. Ct. 354, 33 L. Ed. 696, furnishes a proper rule for the guidance of this court in the present case. The facts in that case are numerous and involved. However, a careful analysis and condensation produces the following result: Portsmouth, Virginia, is separated from Norfolk, Virginia, by the Elizabeth river. Bains were private bankers who conducted their banking and brokerage business at Portsmouth. As stockholders and officers they also controlled a national bank at Norfolk. Over a period of time, in an unlawful manner, the Bains of Portsmouth, by various devices, secured improper loans from the national bank of Norfolk aggregating $1,443, 462.99. This amount, due to the unlawful manner in which it was obtained, possesses all the qualities of a trust fund and was so treated by all the courts. This money, in the course of business, the Bains mingled with that which they obtained from other sources.

On April 2, 1885, the comptroller of the currency took possession of the Norfolk bank. The Bain bank at Portsmouth immediately closed its doors because of insolvency. The Bains of Portsmouth, as partners and individuals, then made an assignment to trustees for the benefit of their creditors. The national bank receiver brought suit in equity claiming that a trust in the assigned property resulted from the unlawful loans to the Bains. The trustees named in the assignment, due to notice with which they were chargeable, were held by all the courts to have obtained no greater rights than the Bains possessed, and that the property in their hands was subject to the same rules that it would have been had no assignment been made.

This case was first tried in the Circuit Court, Mr. Chief Justice Waite of the United States Supreme Court and the circuit judge of that circuit then presiding. The result of the trial was that as to the certain specific property it was adjudged that the receiver was entitled to preference, and as to other items of property this relief was denied.

The reasons for the determination appear in the following excerpts of the decision of the Circuit Court of the United States:

“As to the trust resulting to the [national] bank by reason of the wrongful and unlawful use of its funds by its officers in the purchase of property for the firm or the several members thereof, this branch of the case divides itself into two parts, the first relating to property which was purchased with moneys that can be identified as belonging to the [national] bank; and, second, to that which was bought and paid for by the firm out of the general mass of moneys in their possession, and which may or may not have been made up in part of what had been wrongfully taken from the [national] bank. As to the first of these classes of property we entertain no doubt that the trust exists, and that it may be enforced by the receiver. * * * The property in the second class, however, occupies a different position. There the purchases were made with moneys that cannot be identified as belonging to the bank. The payments were all, so far as now appears, from the general fund then in the possession and under the control of the firm [Bain Bros.]. Some of the money of the [national] bank may have gone into this fund, but it was not distinguishable from the rest.” Peters v. Bain.

In other words, the report of this case discloses that all property of the Bains into which the evidence failed to affirmatively establish that trust funds had entered was placed by the Circuit Court of the United States in the second class, as to which preferential rights were denied the bank's receiver.

This disposition of the case was, by the Supreme Court of the United States, on appeal, “in all things, affirmed.” The opinion was delivered by Fuller, C. J., and during its course he quoted the language of Mr. Justice Bradley in Frelinghuysen v. Nugent (C. C.) 36 F. 229, with reference to the very claim then being made by the national bank receiver that he was entitled to a lien as a preferred claim against the mass of the assets of the Bains, notwithstanding he had been unable to prove that the items of property of which this mass was composed was purchased...