Powell Building & Loan Ass'n v. Larabie Bros. Bankers, Inc.

• Decision Date: 17 June 1935
• Docket Number: 7387.
• Parties: POWELL BUILDING & LOAN ASS'N v. LARABIE BROTHERS BANKERS, Inc., et al.
• Court: Montana Supreme Court

46 P.2d 697

100 Mont. 183

POWELL BUILDING & LOAN ASS'N v. LARABIE BROTHERS BANKERS, Inc., et al.

No. 7387.

Supreme Court of Montana

June 17, 1935

Appeal from District Court, Powell County; R. E. McHugh, Judge.

Action by the Powell Building & Loan Association against the Larabie Brothers Bankers, Incorporated, and another. From a judgment denying plaintiff's claim for preference in distribution of named defendant's assets, plaintiff appeals.

Affirmed in part, cause remanded, with instructions to modify the judgment, and judgment as modified affirmed.

S. P Wilson, of Deer Lodge, for appellant.

John G Brown, L. V. Ketter, and William A. Brown, all of Helena, for respondents.

MORRIS Justice.

In this action the plaintiff seeks to impress a trust upon certain assets in the hands of the superintendent of banks of the state of Montana; such assets coming into the hands of the superintendent by reason of the insolvency of Larabie Brothers Bankers, Incorporated, of the city of Deer Lodge Montana. At the time the facts involved here arose there were but two banks in that city, Larabie Brothers Bankers and the Deer Lodge Trust & Savings Bank. For the sake of brevity these institutions will hereafter be referred to as Larabie Brothers and Deer Lodge Trust.

It appears from the record that the plaintiff held a mortgage on the property of the Odd Fellows Lodge of Deer Lodge, and the officials of the lodge had arranged with Alice Swander to make a new loan on the lodge property for the purpose of taking up and discharging the mortgage held by the plaintiff. March 1, 1933, Alice Swander withdrew from her postal savings account at the post office in Deer Lodge $2,500 in currency for the purpose of using that as a part of the money to take up the mortgage. Acting on the suggestion of her attorney that, pending the consummation of the mortgage deal, it was not advisable to carry the currency on her person, she called at the office of Larabie Brothers where she kept a savings account, and contacted Mr. K. W. Haviland, the assistant cashier of Larabie Brothers. At her request Mr. Haviland prepared a "withdrawal slip" for $325 against her savings account in that bank. With the $2,500 in currency and the withdrawal slip she obtained a cashier's check issued by Larabie Brothers for $2,825 payable to herself or order. In the early afternoon of March 1st, accompanied by her attorney, Senator Paul, and a "Mr. Midtlying," she went to the courthouse in Deer Lodge and by appointment met Mr. S. P. Swenson, secretary and treasurer of the plaintiff, and the four proceeded to the office of the clerk and recorder, where Mr. Swenson satisfied the plaintiff's mortgage against the Odd Fellows Lodge property on the records of Powell county, and thereupon Alice Swander indorsed the cashier's check, making it payable to the Powell Building & Loan Association or order, and delivered the same to Mr. Swenson, the secretary and treasurer of the plaintiff. Mr. Swenson testifies that on leaving the courthouse he returned to his office, passing down the street on which the office of Larabie Brothers was located and on to his office in the Deer Lodge Hotel, where he indorsed the cashier's check and took it along with some other items to the Deer Lodge Trust, where he deposited it "within an hour." The deposit slip introduced in evidence was dated March 1, 1933, but the books of the Deer Lodge Trust showing the account of the plaintiff listed this deposit as having been made on March 2d. The transaction at the courthouse referred to, at which Mr. Swenson received the cashier's check for the plaintiff, took place about 1:30 p. m. on March 1st, and, as stated, Mr. Swenson went down the street, past the Larabie Brothers banking office, some time between 1:30 and 2:30 o'clock p. m., having in his possession the cashier's check. The banking hours of the banks in Deer Lodge were from 10 a. m. to 3 p. m., so obviously, when Mr. Swenson passed down the street, Larabie Brothers was open for business. The office of the plaintiff was about half a block on the opposite side of the street from Larabie Brothers farther down the street from the courthouse than the office of Larabie Brothers. The office of the Deer Lodge Trust where the plaintiff deposited the check was about a block and a half still farther down the street from plaintiff's office, and in going there to make the deposit Swenson had to go about two blocks farther from the courthouse, where he received the check, to come to the Deer Lodge Trust than he would have to go if he had gone directly to Larabie Brothers banking office. The Deer Lodge Trust, according to the practice prevailing between the banks, cleared the cashier's check at 11 o'clock a. m. March 2, 1933, with Larabie Brothers. In the clearings between the two banks on March 2d the Deer Lodge Trust cleared checks against Larabie Brothers for $4,834.03, and Larabie Brothers cleared checks against the Deer Lodge Trust for $324.04. In the settlement of the clearings on that date, Larabie Brothers gave the Deer Lodge Trust a draft for $4,509.99 on the First National Bank & Trust Company of Helena, which appears to have been the correspondent of both of the Deer Lodge banks. On March 2, 1933, the Deer Lodge Trust sent a remittance of several thousand dollars, which included the cashier's check of $2,825, to the Helena bank for the credit of the Deer Lodge Trust. That remittance reached the Helena bank on March 3, 1933, but for some reason not shown by the record it was not credited to the account of the Deer Lodge Trust on that date. March 4, 1933, the President of the United States declared the "Bank Holiday," and Larabie Brothers thereafter failed to reopen for business, and on March 14, 1933, was taken in charge by the superintendent of banks of the state of Montana for liquidation. The draft of $4,509.99 which was received by the Deer Lodge Trust from Larabie Brothers on March 2d in the clearings of that date between the two was returned to the Deer Lodge Trust by the Helena bank, and the amount of the cashier's check the plaintiff had deposited at the Deer Lodge Trust on March 2d was charged back to the plaintiff by that bank.

The assets of Larabie Brothers having passed into the hands of the superintendent of banks, the plaintiff, on October 31, 1933, filed its claim with the superintendent for $2,825 as a preferred claim. November 28th the superintendent wrote the plaintiff by registered mail as follows: "Powell Building and Loan Association, Deer Lodge, Montana: Gentlemen, you are hereby notified that claim in the sum of $2,825 filed by you against Larabie Brothers Bankers, Incorporated, Deer Lodge, is rejected. Yours very truly, Frank H. Johnson, superintendent of banks, by liquidating agent." December 12, 1933, the plaintiff began this action to recover on its claim as a preferred claim. January 6, 1934, the Deer Lodge Trust paid to the plaintiff $179.27 on account of the plaintiff's proportion of the $324.04 which the Deer Lodge Trust received from Larabie Brothers as an offset in the clearings of March 2, 1933. When the action was heard in the district court, plaintiff's claim for preference was denied, but its claim was allowed as a general claim for $2,645.73, which is the balance due on the principal sum of the cashier's check after deducting the $179.27 paid to plaintiff by the Deer Lodge Trust as mentioned above, and the defendant was awarded costs. From that judgment plaintiff appeals.

Plaintiff assigns twelve alleged errors by the trial court. The merits of its claim of preference will turn upon the relation that arose between Alice Swander and Larabie Brothers when the former bought the cashier's check from the latter on March 1st. If the money paid the bank for the check was a "special deposit," the claim of preference must be allowed. If it was a general deposit or the transaction gave rise to the relation of debtor and creditor, the preference must be denied.

It is well settled in this state that, for one to establish a preference in a claim of the nature of that involved here, he must establish three coexistent conditions, as follows: (a) That the transaction created the relation of principal and agent, not creditor and debtor; (b) that by the transaction the assets of the bank were augmented; (c) ability to trace the trust fund into the possession of the bank. California Packing Corporation v. McClintock, 75 Mont. 72, 241 P. 1077; McDonald v. American Bank & Trust Co., 79 Mont. 233, 255 P. 733; Montana-Wyoming Ass'n v. Commercial National Bank, 80 Mont. 174, 259 P. 1060, 1061.

That the transaction between Alice Swander and Larabie Brothers augmented the assets of the latter, and that they were traced into the possession of that institution, there is no question, and consideration of conditions (b) and (c) is unnecessary here.

A cashier's check is a bill of exchange by a bank drawn on itself. There is no legal difference between a cashier's check and a bank draft. Montana-Wyoming Ass'n v Commercial National Bank, supra. When one purchases a cashier's check, "'the transaction is that of purchase and sale. No trust relationship is established.' *** The relation between the bank and the holder of a check issued by it is that of debtor and creditor." Montana-Wyoming Ass'n v. Commercial National Bank, supra; Standard Oil Co. v. Veigel, 174 Minn. 500, 219 N.W. 863; Perry Bank & Trust Co. v. Riggins, 233 Ky. 257, 25 S.W.2d 386; Note, 73 A. L. R. 66, and cases cited. The general rule is that the issuance of a cashier's check does not itself constitute the creation of a trust in favor of the holder of the check, but such check is merely an evidence of indebtedness on the part of the issuing bank. Note, 73 A. L. R. 66, and cases cited; ...