National City Bank v. Continental Nat. Bank & Trust Co.

• Decision Date: 08 April 1936
• Docket Number: No. 1325.,1325.
• Citation: 83 F.2d 134
• Parties: NATIONAL CITY BANK OF NEW YORK et al. v. CONTINENTAL NAT. BANK & TRUST CO. OF SALT LAKE CITY.
• Court: U.S. Court of Appeals — Tenth Circuit

83 F.2d 134 (1936)

NATIONAL CITY BANK OF NEW YORK et al. v. CONTINENTAL NAT. BANK & TRUST CO. OF SALT LAKE CITY.

No. 1325.

Circuit Court of Appeals, Tenth Circuit.

April 8, 1936.

Frank A. Johnson, of Salt Lake City, Utah (A. L. Hoppaugh and Robert E. Mark, both of Salt Lake City, Utah, on the brief), for appellants.

Beverly S. Clendenin, of Salt Lake City, Utah (Harold P. Fabian, of Salt Lake City, Utah, on the brief), for appellee.

Before LEWIS and BRATTON, Circuit Judges, and KENNEDY, District Judge.

KENNEDY, District Judge.

The appellants, plaintiffs in the court below, brought this suit in equity seeking to impress a trust upon $30,000 deposited in the defendant bank, growing out of a fraud perpetrated upon the plaintiffs. Issue was joined by answer, and upon final hearing findings of fact and conclusions of law were filed and a decree entered in favor of the defendant, from which plaintiffs appeal.

A sketch of the pertinent facts disclosed by the record is as follows: One Charles D. Waggoner was the president and manager of the Bank of Telluride, located at Telluride, Colo. In the year 1927, he negotiated a loan of $25,000 from the defendant bank, which continued in existence until September 3, 1929. The note was renewed from time to time and interest paid promptly. Some time during the summer of 1929, upon being pressed by the bank, Waggoner put up collateral as security for his indebtedness consisting of certain shares of stock in the Bank of Telluride and stocks in other banks and commercial companies, together with quitclaim deeds to certain real estate. On August 31, 1929, Waggoner forged telegrams in code purporting to come from the Denver correspondent of the New York banks and trust companies and of the Equitable Trust Company of which plaintiff De Mott is the assignee, by which they were induced to place in the Chase National Bank of New York a total of $500,000 to the credit of the Bank of Telluride. Later, and on the same day, Waggoner, who was in New York City, requested the Chase Bank to certify three checks on said bank which had been executed by the cashier of the Bank of Telluride, payable to Waggoner, covering the entire deposit of $500,000. One of these checks for the sum of $225,000 Waggoner indorsed to the order of the First National Bank of Pueblo, Colo., and transmitted it to the Pueblo bank, with directions to place the amount to the credit of the Bank of Telluride and to transmit $30,000 thereof to the defendant bank in Salt Lake City for the credit and account of one J. C. Anderson. The Pueblo bank followed the instructions, transmitted the $30,000 to the defendant bank through the Walker Bank & Trust Company of Salt Lake City. The defendant bank received the $30,000 some time during the forenoon of September 3d from the Walker Bank and placed the same to the credit of said Anderson. Some brief time preceding this transaction Waggoner had communicated to the defendant bank his expectation that in a short time he would be able to take up his note of $25,000 through the assistance of a friend. Before going to New York City, Waggoner had instructed Anderson, a resident of Denver, to call up the defendant bank within a few days by telephone and in case a deposit had been made in Anderson's name there to use the deposit for the purchase of Waggoner's note and to instruct it to forward the note with the collateral security to Anderson, and that he (Waggoner) would call and get the securities at a later date. Some time during the afternoon of September 3, 1929, Anderson called the defendant bank by telephone and inquired if a deposit had been made, and, upon being informed that it had, he instructed the cashier to charge his account with the amount of the Waggoner note and to forward it with the pledged securities to him in Denver. During the course of the afternoon and before the close of banking hours, the transaction was completed by the defendant bank charging the Anderson account with the sum of $25,079.16 and transmitting the note and securities through the mails to Anderson as directed. Some time on September 4, 1929, a discovery was made of the fraud perpetrated by Waggoner, followed on the next day by general publicity given in the newspapers throughout the country. Also on that date, September 5th, the bank was called by telephone by one Borden, representing the plaintiffs, who advised the defendant bank of the fraud and requested said bank to hold the money received by it in the transaction for the benefit of plaintiffs. Upon being advised by the defendant bank that at the time it only had about $5,000 on hand, Borden requested that such amount be held for plaintiffs. In the meantime the defendant bank received a letter acknowledging the receipt of the Waggoner note and securities and inclosing a signature card of Anderson. On September 9, 1929, one B. M. Webster presented a check to the defendant bank signed by Anderson and also indorsed by him, covering the balance of the amount deposited in his name for the sum of $4,920.84, which was accepted and the money in that amount paid to the payee, Webster. The bill in this case was filed August 29, 1933.

There appears to be no dispute between the parties as to the jurisdiction of the court to hear and dispose of the case on the equity side. The controversy naturally divides itself into two phases, which are separately discussed in the briefs, one relating to the payment of the note amounting to $25,079.16, and the other to the payment of the check amounting to $4,920.84; the two making up the entire fund of $30,000.

It is contended by the appellants that the circumstances under which the $30,000 deposit was made were such as to put the bank upon notice that some one other than the depositor had an interest in the fund. We think that this contention cannot be sustained. The deposit came in the ordinary course of business, and, in view of the fact that Waggoner had previously advised the bank that he expected to secure the assistance of a friend in taking up his note, it was natural that the bank should recognize the instruction of Anderson by phone as the friend from whom Waggoner had received the promised assistance. In accordance with their theory and belief, the bank in due course following the instructions, charged the account of Anderson with the amount due upon the note, and transmitted the note with the securities to him. This clearly appears to be a very common and ordinary transaction in everyday banking, devoid of suspicious circumstances.

But it is again contended by appellants that, even though the defendant bank took over $25,079.16 of the deposit without any notice of the fraud of Waggoner, under the equitable rule, the appellants had the right to reclaim the amount unless the defendant bank could show that it had changed its position and had a superior equity in the deposit. This doctrine is predicated upon the decisions in Bank of Metropolis v. Bank of New England, 6 How. 212, 12 L.Ed. 409; Beaver Boards Companies v. Imbrie & Co. (D.C.) 287 F. 158; Fulton National Bank v. Hosier (C.C.A.) 295 F. 611; Harter Bank v. Inglis (C.C.A.) 6 F.(2d) 841; and Citizens' & Southern Bank v. Fayram (C.C.A.) 21 F.(2d) 998. Assuming that the rule of "changes position" is well established in cases in which there is no notice, yet the facts in the case at bar fully justify its application here. The position of the appellee has been changed to its detriment, in that in the due course of business it had surrendered not only the note of its debtor but the collateral security securing it as well. That at the time of the trial it had been determined that the securities were of little value is not controlling, although the record discloses that some of the securities had been disclosed of for substantial sums. Again, if the rule be invoked that, where funds procured through fraud are traced into the hands of a third person, the burden of proof is placed upon the person holding such funds to show that they were acquired in good faith, as announced in Curtis, Collins & Holbrook Co. v. United States, 262 U.S. 215, 43 S.Ct. 570, 67 L.Ed. 956, and other cases cited, the burden is fully sustained in the case at bar by the proofs demonstrating beyond peradventure that the funds were acquired in good faith without notice and that the $25,079.16 was devoted to a legitimate and authorized purpose in the due course of banking. It is an impelling circumstance in this connection that the deposit was in the nature of money. It has been repeatedly held by the courts that money, unlike other articles of personal property, is not earmarked. As was stated in Holly v. Missionary Society, 180 U.S. 284, at page 293, 21 S.Ct. 395, 398, 45 L.Ed. 531, in adopting the language of the New York high court (Stephens v. Brooklyn Board of Education, 79 N.Y. 183, 35 Am.Rep. 511):

"`The law wisely, from considerations of public policy and convenience, and to give security and certainty to business transactions, adjudges that the possession of money vests a title in the holder as to third persons dealing with...