First Nat. Bank v. Davis

• Decision Date: 03 April 1894
• Parties: FIRST NAT. BANK OF RICHMOND v. DAVIS et al.
• Court: North Carolina Supreme Court

19 S.E. 280

114 N.C. 343

FIRST NAT. BANK OF RICHMOND v. DAVIS et al.

Supreme Court of North Carolina

April 3, 1894

Appeal from superior court, New Hanover county; Brown, Judge.

Action by the First National Bank of Richmond, Va., against Junius Davis and James A. Leak, receivers of the Bank of New Hanover, to establish a preferential claim against the assets of the Bank of New Hanover in defendants' hands. The action was dismissed, and plaintiff appeals. Affirmed.

The following is so much of the case on appeal as is essential to an understanding of the opinion: "Defendant Davis is the receiver of the Bank of New Hanover at Wilmington, and defendant Leak is a receiver of a branch of said bank at Wadesboro. The Bank of New Hanover at Wilmington received drafts, notes, and other evidences of debt daily from the plaintiff for collection, charging therefor one-eighth of 1 per cent. for all collections on Wilmington, and one-fourth of 1 per cent. on all collections outside of Wilmington, and agreed to remit daily. In pursuance of that agreement, the Bank of New Hanover received a large number of collections from the plaintiff. Said bank collected and remitted daily generally. The letters from the plaintiff to said bank inclosing said collections sued for in this action, run from May 21, 1893, to June 14, 1893, and are 22 in number. The Bank of New Hanover made an assignment, and receivers were appointed, June 19, 1893. The cashier, W. L. Smith, had no knowledge that the Bank of New Hanover was insolvent until it failed. The plaintiff kept no deposit account for the Bank of New Hanover, and the Bank of New Hanover kept no regular deposit account for the plaintiff. At the time of its failure, the Bank of New Hanover had received for collection sent to it by the plaintiff, the sum of $12,286.92. Of this sum $146.11 was received in actual money, and the remainder of the said sum was received in checks on the Bank of New Hanover and the Atlantic National Bank. The plaintiff had no knowledge of the insolvent condition of the Bank of New Hanover. The Bank of New Hanover, following the invariable custom of all banks, kept its receipts from collections and all other moneys received by it mixed together in one general fund."

Iredell Meares and Thomas W. Strange, for appellant.

Whenever an individual or corporation is employed by another to make a collection under a specific agreement that, in consideration of a certain commission paid to him or it, the collection will be made and the proceeds remitted daily,--that is, immediately,--this, as a matter of law, creates the relation of principal and agent before, and of trustee and cestuis que trustent after, said collections are made, and so long as the proceeds remain in the agent's hands. Morse, Banks (Old Ed.), pp. 323, 324; Harrison v. Smith, 83 Mo. 210; Bank v. Weems (Tex. Sup.) 6 S. W. 802; First Nat. Bank v. Armstrong, 36 F. 61; Commercial Bank v. Armstrong, 13 S.Ct. 533, 148 U.S. 50; Bank v. Peters, 25 N.E. 319, 123 N.Y. 282; People v. City Bank of Rochester, 96 N.Y. 32; Baker v. Bank, 2 N. E. 452, 100 N.Y. 31; Illinois Trust & Sav. Bank v. First Nat. Bank of Buffalo, 15 F. 858; Frith v. Cartland, 2 Hen. & M. 419; Knatchbull v. Hallett (Cook's Notes) 36 Eng. R. 788, 13 Ch. Div. 696.

Whether the relation hip of trustee and cestuis que trustent existed between the plaintiff bank and the Bank of New Hanover in its strict sense, after these collections were made, is immaterial. There can be no doubt that the relationship existing between them was a fiduciary one, and not that of debtor and creditor. This being so, the plaintiff has the same rights as against the defendant bank under such a relationship, as far as tracing the proceeds of collections is concerned, as if the relationship was strictly that of trustee and cestuis que trustent. Knatchbull v. Hallett, 36 Eng. R. 779, 784, 788, 790.

Even though these collections had not been upon a specific agreement which compelled the Bank of New Hanover to immediately remit the proceeds of collections made for plaintiff, but the claims were sent for collection simply, and the relationship of debtor and creditor would, in the absence of fraud, have existed after said collections were made, yet if the Bank of New Hanover, contrary to the instructions given, had converted the proceeds to its own use, knowing that it was insolvent, and kept that fact concealed from the plaintiff, then the relationship of debtor and creditor would be changed into that of trustee and cestuis que trustent. Bank v. Peters, 25 N.E. 319, 123 N.Y. 272; Railroad Co. v. Johnston, 10 S.Ct. 390, 133 U.S. 566; Cragie v. Hadley, 1 N. E. 537, 99 N.Y. 131; Plow Co. v. Lamp, 45 N.W. 1049, 80 Iowa, 722; Banks v. Geotz (Ill. Sup.) 27 N.E. 907; Wasson v. Hawkins, 59 F. 236.

Geo. Davis and Geo. Rountree, for respondents.

Under the agreement, the Bank of New Hanover was the agent of plaintiff to make the collections; but when the collections were made, and the proceeds mingled with the general funds of the bank, the relation of principal and agent was changed to that of debtor and creditor, and the Bank of New Hanover was not a trustee of the proceeds for plaintiff. Beal v. City of Somerville, 1 C. C. A. 598, 50 F. 649; Marine Bank v. Fulton Bank, 2 Wall. 252; Bank v. Risley, 4 Sup. Ct. 322, 111 U.S. 125; 1 Morse, Banks, § 248; Freeman's Bank v. National Tube-Works, 24 N.E. 479, 151 Mass. 418; Manufacturers' Bank v. Continental Bank, 20 N.E. 193, 148 Mass. 558; Commercial Bank v. Armstrong, 13 S.Ct. 533, 148 U.S. 50.

BURWELL J.

After a careful examination of the numerous authorities cited by the counsel representing the parties to this cause, we have come to the conclusion, upon the facts found, that the relation of the Bank of New Hanover to the plaintiff bank at the time of the appointment of the defendant receiver was merely that of debtor to creditor as to the sum of money which is in controversy in this suit. The two banks must be presumed to have entered into the contract between them with the expectation and implied...