Holbrook Irr. Dist. v. First State Bank of Cheraw

• Decision Date: 11 June 1928
• Docket Number: 12009.
• Citation: 268 P. 523,84 Colo. 157
• Parties: HOLBROOK IRR. DIST. v. FIRST STATE BANK OF CHERAW et al.
• Court: Colorado Supreme Court

268 P. 523

84 Colo. 157

HOLBROOK IRR. DIST. v. FIRST STATE BANK OF CHERAW et al.

No. 12009.

Supreme Court of Colorado

June 11, 1928

Department 1.

Error to District Court, Otero County; Samuel D. Trimble, Judge.

Action by the Holbrook Irrigation District against the First State Bank of Cheraw and another. Judgment of dismissal, and plaintiff brings error.

Affirmed.

E. W. McDaniel, of La Junta, for plaintiff in error.

Leo P Kelly and Charles M. Rose, both of Pueblo, for defendants in error.

WALKER J.

This action was brought by the plaintiff in error against the defendants in error for the purpose of obtaining a decree that a deposit standing to the credit of plaintiff in error in the First State Bank of Cheraw, in the sum of $5,412.34 should be paid by the state bank commissioner to the plaintiff in error as a preferred claim upon all the assets of the bank. The bank suspended payment on August 24, 1925 being then insolvent, and on that date the state bank commissioner took possession of its books, records, and assets for the purpose of liquidating its affairs. At the time the bank suspended, there appeared upon its books a general checking account in the name of the 'Holbrook Irrigation District, I. W. Strickler, Secretary.' The items upon this account extended from September 15, 1919, to August 6, 1925. On December 31, 1920, however, there was no money in the account. From that date until August 6, 1925 deposits in varying amounts appeared, with only two checks, the last of which is January 6, 1923, in the sum of $1,578.57. In the year 1925, the deposits aggregated approximately $500; in the year 1924, approximately $900; and the balance was scattered over the years 1922 and 1933. The theory of the complaint was that Strickler, as secretary of the Holbrook irrigation district, had collected moneys due the district, and without the knowledge or consent of its officers, had unlawfully deposited those moneys in the Cheraw bank, instead of remitting them to the county treasurer, who, under our statutes, is the lawful treasurer of the irrigation district, and that, as Strickler was the cashier and active manager of the bank, the bank must be deemed to have accepted such deposits with knowledge that they were unlawfully deposited with the bank, and therefore that such deposits must be treated as a trust fund belonging to the irrigation district. The complaint alleged, among other things, that:

'At the date it closed its doors * * * the said bank was in possession of cash and assets composed in part of said funds of said irrigation district, having a cash value largely in excess of the said sum so on deposit, to the credit of said irrigation district.'

The answer denied this allegation and affirmatively averred that:

'No part of said deposit came into the hands of the defendant Grant McFerson as liquidator of said bank.'

The case was tried to the court below upon an agreed statement of facts, supplemented by certain evidence. The agreed statement of facts shows the deposit as above stated, and by such statement of facts it was stipulated:

'That the money or credits represented by said credit balance was mixed and commingled with the general funds of said bank and was used in the usual course of business of the bank.'

It was also stipulated that on the date when the bank closed there were in it the following items: Cash items, $393.21; due from reserve banks, $3,138.35; cash, § 912.62; Liberty bonds, $600. It was also agreed that on various dates which had been specifically mentioned in the answer, including August 24, 1925, the cash value of the assets of the bank was in excess of the amount of plaintiff's deposit. Plaintiff introduced evidence tending to show the collection of moneys by the secretary, and the lack of knowledge of the directors as to the deposit in the bank. Plaintiff also called the deputy state bank examiner in charge of the bank, who testified that the assets of the bank at the time it closed were of the value of about $40,000, not including the stockholders' liability, and that such assets consisted of money, promissory notes, one piece of real estate, and banking house securities. This witness also testified to the amounts of cash, cash items, Liberty bonds, and credits with correspondent banks, on August 15, 1924, September 3, 1924, June 5, 1925, August 15, 1925, and August 25, 1925. He identified the ledger account showing the deposits as hereinabove set forth. He testified upon cross-examination that the books of the bank did not show the source or exact character of the deposits. From his testimony it also appeared that of the $3,138.35 due from reserve banks when the Cheraw bank closed, $2,546.67 was directly traceable to a deposit by the Holly Sugar Company, on August 15, 1925, and $410.04 was directly traceable to a draft upon one Libby McNeil, and that none of the balances in correspondent banks at the date the bank closed, arose out of the transfer of surplus funds of the Cheraw bank. This witness was also called for direct examination by the defendants. The trial court found the issues for the defendants and dismissed the complaint.

The claim of the plaintiff in error to a preference, to the full amount of its deposit, is urged upon two grounds: (1) That the district is entitled to the full amount of its claim because the assets of the insolvent bank are impressed with a trust in favor of the district to the amount of the deposit; and (2) because the moneys due the district from the insolvent bank have a preference as moneys due the sovereign.

It may be admitted, although we do not find it necessary to so decide, that under our statutes the secretary of the district was under a legal duty to transmit the funds of the district, collected by him, to the county treasurer, and that when he violated that duty by depositing them in a bank of which he was cashier and acting manager, such funds became, in the hands of the bank, trust funds equitably belonging to the district. As supporting this contention of plaintiff in error, see the following cases: Crawford County Com'rs v. Strawn (C.C.A.) 157 F. 49, 15 L.R.A. (N. S.) 1100; First Nat. Bank v. Bunting, 7 Idaho 27, 59 P. 929, and many cases collected in annotation to Maryland Casualty Co. v. Rainwater, 51 A.L.R., at page 1342.

Apparently it is the view of plaintiff in error that, having shown that the bank received trust funds, and that they were mingled by the bank with its other funds and used by it in the course of its business, and that when it suspended business it was possessed of assets having a cash value in excess of the amount of the trust fund, this was a sufficient showing to entitle the district to have all of the assets of the bank impressed with a trust in favor of the district, to be enforced by the allowance of a prior claim, to be paid out of the cash realized from the sale of those assets. We do not find in the brief of plaintiff in error any other theory advanced as a ground for reversing the judgment. We shall therefore not consider any possible claim which might have been made on behalf of the plaintiff in error, under the presumption that trust funds are the last withdrawn from a mingled fund, to any part of the cash, cash items, or funds in correspondent banks, which were on half when the state bank commissioner assumed possession of the bank. We may observe, however, that it is obvious from the facts which we have stated that at least as to the credits with correspondent banks, the source of such funds was affirmatively shown to be other than the plaintiff's deposit. At all events, we shall test the right to reverse this judgment only upon the theory that has been advanced by the plaintiff in error.

The ground upon which a trust will be impressed in favor of the owner of a trust fund, upon the insolvency of the trustee and as against his general creditors, is that the assets comprising the insolvent estate at the...