Flack v. Hood
| Decision Date | 15 March 1933 |
| Docket Number | 597. |
| Citation | 168 S.E. 520,204 N.C. 337 |
| Parties | FLACK v. HOOD, Commissioner of Banks. |
| Court | North Carolina Supreme Court |
Appeal from Superior Court, Buncombe County; Clement, Judge.
Action by Lavina Flack against Gurney P. Hood, Commissioner of Banks. From judgment for plaintiff, defendant appeals.
Affirmed.
Person who deposited funds with insolvent bank and trust company as trustee to be held for payment of interest and principal upon note in hands of trustee for collection held entitled to preference.
Civil action to establish preference, or priority of plaintiff's claim to funds in the hands of the liquidating agent of insolvent bank.
The case was heard by the court without the intervention of a jury, upon facts agreed or found without objection:
(1) The Central Bank & Trust Company of Asheville, N. C., chartered under the banking laws of the state, was placed in the hands of the defendant as liquidating agent, because of insolvency on November 19, 1930.
(2) Prior thereto and at various times from May 18, 1930, to November 18, 1930, the plaintiff had deposited with, or delivered to, the Central Bank & Trust Company as trustee under a trust agreement in writing and duly registered, sums aggregating $2,931.25 for the establishment of a fund to pay the interest and principal installments, as they should become due, upon certain first mortgage notes held by third persons and in the hands of the trustee for collection.
(3) These deposits were carried as a trust account in the trust department of the bank, and had not been applied to the specific purposes for which said account was held at the time of the bank's closing.
(4) All moneys received under the terms of the trust agreement were deposited by the trust department of the Central Bank & Trust Company in its general account carried with the commercial department of the same bank. This general account of the trust department with the commercial department, made up of many funds received from various parties, was the only account carried by the trust department at the time of the closing of the Central Bank & Trust Company, and was at that time overdrawn by approximately $21,000.
Upon the foregoing pertinent facts, it was adjudged "that the claim of the plaintiff be, and the same is hereby, allowed as a preferred claim against the assets of the Central Bank & Trust Company, and when final settlement is made by said defendant the said claim shall be allowed priority in payment over the claims of the common creditors and shall either be paid in full, as a preferred claim, or in the event of an insufficient amount, to pay all of the preferred claims, then it shall share pro rata with the other preferred claims against the said Central Bank & Trust Company."
Defendant appeals, assigning error.
Johnson Smathers & Rollins and T. A. Uzzell, Jr., all of Asheville for appellant.
Harkins, Van Winkle & Walton, of Asheville, for appellee.
The case is controlled by the decision in Parker v. Central Bank & Trust Co., 202 N.C. 230, 162 S.E. 564 (), unless the circumstance, appearing here, but which did not appear there, that the account of the trust department with the commercial department was overdrawn at the time of the closing of the Central Bank & Trust Company, differentiates the two cases and reduces plaintiff's claim from one of preference to one of commonalty.
It is the position of the plaintiff that the method of handling the account in question was a matter of internal bookkeeping, or of self-dealing, and is without material significance in the case (Glidden v. Gutelius, 96 Fla. 834, 119 So. 140, 120 So. 1); that the Central Bank & Trust Company was authorized to do a trust business as well as a commercial business (C. S. Supp. 217 (a); that it had but one charter, and, although its two departments may have been separate and distinct, together they comprised but a single business unit (In re Prudential Trust Co., 244 Mass. 64, 138 N.E. 702), rendering it inequitable to allow such an institution to change its status from trustee to debtor simply by shifting funds from its right hand to its left, or from one till to another (Terre Haute Trust Co. v. Scott [Ind. App.] 181 N.E. 369; Note, 31 Mich. L. Rev. 532; 44 Harvard L. Rev. 1281); that the general depositors knew, or should have known, that trust funds in the hands of such a banking institution, deposited for special purposes, were perforce received in a fiduciary capacity and would necessarily be held subject to the equitable principles existing between the parties to such fiduciary relationship ( First & Citizens' Nat. Bank v. Corp. Comm., 201 N.C. 381, 160 S.E. 360; Corp. Comm. v. Trust Co., 193 N.C. 696, 138 S.E. 22; Glidden v. Gutelius, supra); and that, when an agent, bailee, or trustee, commingles funds with his own, and dissipates a portion of the commingled fund, he will be presumed to have dissipated his own funds first, and that the remainder of such commingled fund will be subject to distribution among his cestui que trustent according to their respective rights (Myers v. Matusek, 98 Fla. 1126, 125 So. 360; note, 82 A. L. R. 46, et seq.).
The defendant, on the other hand, says that the rightfulness of the deposit made by the trust department with the commercial department, whether legal or other, in the absence of statutory authorization, is not challenged; that it does appear by so depositing said funds they were thereby segregated or earmarked as belonging to a separate account that this account was overdrawn to the extent of $21,000 at the time of the bank's closing; that, instead of augmenting the funds in the hands of the liquidating agent, they were apparently diminished to the extent of the overdraft; that, to entitle a claimant to preferential payment from the assets of an insolvent bank in the hands of a liquidating agent, it must appear the funds demanded were in the bank's possession as agent, bailee, or trustee; that such funds reached the hands of the liquidating agent in some form; that the assets brought under his control were larger by this amount than they otherwise would have been ( Tinsley v. Amos, 102 Fla. 1, 135 So. 397); and that plaintiff has failed to make out such a case (McDonald v. Fulton, 125 Ohio St. 507, 182 N.E....
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