National Bank of Republic v. Porter

• Decision Date: 16 July 1927
• Docket Number: 4648
• Parties: NATIONAL BANK OF THE REPUBLIC, a Corporation, Appellant, v. E. W. PORTER, Commissioner of Finance of the State of Idaho, Respondent
• Court: Idaho Supreme Court

258 P. 544

44 Idaho 514

NATIONAL BANK OF THE REPUBLIC, a Corporation, Appellant, v. E. W. PORTER, Commissioner of Finance of the State of Idaho, Respondent

No. 4648

Supreme Court of Idaho

July 16, 1927

BANKS AND BANKING-CLASSIFICATION OF CLAIM AGAINST INSOLVENT BANK-CLAIMANT MUST TRACE PROCEEDS-SHOWING PAYMENT OF DRAFTS TO COLLECTING BANK HELD INSUFFICIENT-CLAIM NOT CLASSIFIED AS DEBT.

1. That claim against insolvent bank, being liquidated by the commissioner of finance, for collection by it of drafts sent to it for collection, may be classified as a debt due by it as trustee, claimant must trace the proceeds of the payment of the drafts into the hands of the commissioner, or, if they were so commingled with the property of the bank as to render tracing or identification thereof impossible, must show that they augmented, or bettered, the estate coming into the possession of the commissioner.

2. Merely showing that drafts sent to a bank for collection were paid to it, without showing that they were paid in cash rather than by check on it, is insufficient to trace the proceeds of the payment into the hands of its liquidator, or to show that they augmented, or bettered, the estate coming into his possession, so as to allow the claim against it on account of the collection to be classified as a debt due by it as trustee.

APPEAL from the District Court of the Eleventh Judicial District for Twin Falls County. Hon. William A. Babcock, Judge.

Classification of claim against insolvent bank under Sess. Laws 1921, c. 42 sec. 13, by Commissioner of Finance. From judgment affirming classification under subdivision 4, plaintiff appeals. Affirmed.

Judgment affirmed. Costs to respondent.

Walters & Parry and J. R. Keenan, for Appellant.

The proceeds of a collection constitute a trust fund in the hands of the collecting bank. (Goodyear Tire & Rubber Co. v. Hanover State Bank, 109 Kan. 772, 21 A. L. R. 677, 204 P. 992; American Can Co. v. Williams, 176 F. 816; Holder v. Western German Bank, 136 F. 90, 68 C. C. A. 554; Ryan v. Paine, 66 Miss. 678, 6 So. 320; Kansas State Bank v. First State Bank, 62 Kan. 788, 64 P. 634; Hutchinson v. National Bank, 145 Ala. 196, 41 So. 143; National Life Ins. Co. v. Mather, 118 Ill.App. 491.)

The proceeds of a collection constitute a trust fund in the hands of the collecting bank when instructions are to collect and remit in definite exchange or remit by draft.

Insolvency of the collecting bank coupled with violation of instructions to it will render proceeds of a collection a trust fund in the hands of such bank. (First National Bank v. Dennis, 20 N.M. 96, 146 P. 948.)

An agent parting with title to a fund in a way not authorized commits a conversion of such fund. (Comley v. Dazian, 114 N.Y. 161, 21 N.E. 135.)

A trust fund is traced into the hands of a receiver of an insolvent bank when it is shown that the estate of the insolvent has been augmented by the trust fund and such augmented estate passed into the hands of the receiver. (Martin v. Smith, 33 Idaho 692, 197 P. 823.)

Insolvency of a bank known to its officers terminates the bank's agency for collection. (7 C. J. 625.)

Stephan & North, for Respondent.

Where one bank collects money for another bank the relationship of principal and agent exists until the collection is made, and when the collection is made that relationship is immediately changed to one of debtor and creditor. (Sess. Laws 1921, chap. 42, par. 13; Morse on Banks and Banking, sec. 248; 3 R. C. L. 636; 24 A. L. R. 1152 (notes at bottom of page); 7 C. J. 616; First National Bank of Richmond v. Davis, 114 N.C. 343, 41 Am. St. 795, 19 S.E. 280; Billingsley v. Pollock, 69 Miss. 759, 30 Am. St. 585, 13 So. 828; Merchants & Farmers' Bank v. Austin, 48 F. 25.)

Where a bank receives drafts from another bank for collection, together with instructions to "remit in exchange only," the collecting bank may mingle the money with its own funds and such money is not impressed with trust characteristics. (Akin v. Jones, 93 Tenn. 353, 42 Am. St. 921, 27 S.W. 669, 25 L. R. A. 523; 3 R. C. L. 633; 86 Am. St. 790, note (6).)

The right of a creditor to pursue and reclaim funds in the hands of the Commissioner of Finance in charge of an insolvent bank must rest upon his right of property in said funds. (Lusk Development & Imp. Co. v. Giinther, 32 Wyo. 294, 232 P. 518; Bacon v. State Bank of Kamiah, 41 Idaho 518, 240 P. 194; People v. California Safe Deposit & Trust Co., 23 Cal.App. 199, 137 P. 1111, 1115; Cox v. St. Anthony Bank & Trust Co., 41 Idaho 776, 242 P. 785; Fralick v. Coeur d'Alene Bank & Trust Co., 36 Idaho 108, 210 P. 586.)

Protest fees incurred after a bank has closed its doors and passed into the hands of the Commissioner of Finance because of insolvency are not allowable. (C. S., sec. 5985; Sess. Laws 1921, chap. 42, sec. 3; Sess. Laws 1921, chap. 42.)

VARIAN, Commissioner. Brinck, McNaughton, CC., Wm. E. Lee, C. J., Budge, Taylor and T. Bailey Lee, JJ., concurring.

OPINION

VARIAN, Commissioner.--

Appellant, doing business at Salt Lake City, Utah filed three claims with respondent against the Citizens State Bank, of Buhl, each of which was classified under Sess. Laws 1921, chap. 42, sec. 13, subd. 4, as a "contractual" liability to be paid after debts due to depositors. Appeal as to each claim was taken to the district court, and the Commissioner's classification there affirmed, from which judgment claimant appeals to this court. All three appeals were heard together upon a stipulation of facts from which it appears:

That the Citizens State Bank, of Buhl, was engaged in the general banking business up to December 2, 1921, when it went into the hands of respondent for liquidation; that on or about November 23, 1921, appellant transmitted to said bank, at Buhl, Idaho, a draft for $ 1,399.22, drawn by Ford Motor Company, upon the Daley Auto Company, of Buhl; on or about November 10, 1921, appellant transmitted to said bank a draft for $ 31.10, drawn by the Ford Motor Company, upon the Whitby Garage, of Buhl; and on or about the day of November, 1921 appellant transmitted to said bank a draft for $ 35.39, drawn by Ford Motor Company, upon Daley Auto Company, of Buhl; that each of said drafts was accompanied by bills of lading, etc., and instructions that the drafts were "for collection and immediate remittance in Salt Lake exchange only"; that at said times appellant had no account with said bank, and each of said drafts was transmitted for the sole purpose of collection and remittance to appellant "under the usual and ordinary customs of banking business"; that...