Russell v. Bank of Nampa, Ltd.

• Decision Date: 01 December 1917
• Citation: 169 P. 180,31 Idaho 59
• Parties: C. P. RUSSELL, Appellant, v. BANK OF NAMPA, LIMITED, a Corporation, and E. SMALLWOOD, as Special Deputy Bank Commissioner and Receiver of Said BANK OF NAMPA, LIMITED, Respondents
• Court: Idaho Supreme Court

169 P. 180

31 Idaho 59

C. P. RUSSELL, Appellant, v. BANK OF NAMPA, LIMITED, a Corporation, and E. SMALLWOOD, as Special Deputy Bank Commissioner and Receiver of Said BANK OF NAMPA, LIMITED, Respondents

Supreme Court of Idaho

December 1, 1917

BANKS AND BANKING-INSOLVENCY-DEPOSITOR-TRUST FUND.

Where a party who is indebted to a bank leaves with it, as security notes belonging to him, and authorizes it to collect upon them and apply a portion of the proceeds to the payment of his debt, and instructs it to not deposit the balance, but to deliver it to a third person, and the cashier, contrary to such instruction, deposits the balance in the bank, such balance is not a general but a special deposit, or trust fund.

[As to a bank's liability for special deposits, see note in 9 Am.Dec. 183]

APPEAL from the District Court of the Seventh Judicial District, for Canyon County. Hon. Ed. L. Bryan, Judge.

Action to establish a preferred claim against the assets of an insolvent bank in the hands of a receiver. Judgment for defendants. Reversed.

Judgment of the trial court reversed, with direction. Costs awarded to appellant.

T. A Walters and Geo. H. Van de Steeg, for Appellant.

"The relation of banker and creditor cannot be created without the consent of the owner of the funds deposited." (3 R. C. L., sec. 183; Winslow v. Harriman Iron Co. (Tenn Ch.), 42 S.W. 698.)

The bank in this case was a collecting bank merely as to the note and mortgage; it accepted the draft, payable to itself, as actual money in payment of said note and mortgage, and credited the account of Russell with the actual cash. (3 R. C. L., secs. 151, 261, 262; Paul v. Draper, 158 Mo. 197, 81 Am. St. 296, 59 S.W. 77.)

If this fund is a trust fund and the receiver came into possession of the same along with the other assets of the bank, what further is there to prove to trace or identify the fund? It is not necessary to identify the particular money. ( Lincoln v. Morrison, 64 Neb. 822, 90 N.W. 905, 57 L. R. A. 885; State v. Bruce, 17 Idaho 1, 134 Am. St. 245, 102 P. 831, L. R. A. 1916C, 1; Sherwood v. Central Michigan Savings Bank, 103 Mich. 109, 61 N.W. 352.)

If the receiver came into possession of the fund, and it be decided that the same is a trust fund, and has become mingled with the other funds of the bank by the unlawful act of an officer of the bank, then plaintiff has sufficiently traced and identified the fund. (3 R. C. L., sec. 180, and cases cited.)

Scatterday & Van Duyn, for Respondents.

Agency gives the right to make a general deposit. Mr. Lore had an implied authority to make a general deposit in the bank in the name of whoever owned this money, whether it be the plaintiff in the action or whether it be the son. In either capacity, the deposit was lawfully made. (31 Cyc. 1335, 1340, 1344.)

If we consider Mr. Lore as a bailee for the benefit of either of the Russells, he was in duty bound to take care of the proceeds of the balance received by him in the ordinary, careful and usual manner. (5 Cyc. 177, 184.)

A trust depositor must show by presumption of law or otherwise that his fund has been preserved in the hands of the assignee or receiver as an increase in the assets of the estate from which it may be taken without infringement of the rights of general creditors. (Bradley v. Chesebrough, 111 Iowa 126, 136, 82 N.W. 472; 1 Bowles on Banking, p. 191; Bellevue State Bank v. Coffin, 22 Idaho 210, 226, 125 P. 816.)

It is absolutely necessary for the plaintiff to prove, before he can recover the alleged trust fund, first: That the receiver came into the possession of a sufficient amount of money to pay said claim; and, second: That the deposit was unlawfully made. Both of these points are necessary, and the appellant has shown neither. It is indisputable that he has failed to prove the first of these two necessary factors. ( Burroughs v. Johntz, 57 Kan. 778, 48 P. 27; Cherry v. Territory, 17 Okla. 221, 89 P. 192, 195, 8 L. R. A., N. S., 1254.)

MORGAN, J. Budge, C. J., and Rice, J., concur.

OPINION

MORGAN, J.

W. W. Russell was indebted to the Bank of Nampa, Limited, in the sum of $ 1,666.20, and to secure the payment of the indebtedness certain notes, amounting to $ 3,250, secured by mortgage, executed and delivered to him by August Felise and Eveline Felise, were left at the bank. During July, 1913, he assigned these notes to appellant, his father, subject to the claim of the bank, for $ 1,400. On or about September 22, 1913, the bank received a draft from August Felise for $ 3,035 in settlement of the indebtedness; of this $ 1,666.20 was applied in payment of the indebtedness of W. W. Russell to the bank and the balance, $ 1,368.80, was placed to his credit, and the draft was forwarded by the bank for collection. On September 27, 1913, the bank, being insolvent, closed its doors, and in October was adjudged insolvent, and respondent, Smallwood, was named receiver. Appellant instituted this action to recover the $ 1,368.80 placed to the credit of W. W. Russell, claiming the same was his; that the bank had been instructed to notify him when the draft came and to deliver to him the balance, after payment of the W. W. Russell indebtedness. Appellant sought to have the assets of the bank impressed with a trust in his favor for that amount.

The court found that the balance of $ 1,368.80 was deposited by W. W. Russell in his own name for the use and benefit of appellant, and that such balance was held by the bank as a general deposit in due and ordinary course of business, and not as a special deposit, or trust fund, and that it was not, nor was any part of it, traced or identified and that there was no evidence before the court showing that the said credit balance, or any part thereof, is capable of being identified or traced. Judgment was rendered for respondents, from which this appeal has been taken.

It is clear from the evidence that appellant himself did not authorize the deposit by the bank to the credit of W. W. Russell, and he contends that C. E. Lore, cashier of the bank, was instructed by W. W. Russell to not deposit the balance, but to notify appellant when the money arrived and, upon his appearance, to deliver it to him.

W. W. Russell testified that permission was given the bank to try to realize on the Felise notes; that Felise arranged to pay the notes and the draft was sent to the bank; that when Lore found out the draft was coming, he notified the witness and agreed to not deposit the balance left after paying his indebtedness, but to notify him when it arrived and to hold the balance for appellant. Lore testified that he knew of the assignment of the Felise notes to appellant; that shortly before the draft arrived W. W. Russell requested that he notify him when it came and to pay the balance over to his father; that when the draft did come he gave W. W. Russell credit for the full amount and charged his indebtedness against his account. He further testified:

"Q. Would that have the effect of leaving a deposit to Mr. W. W. Russell's account in the bank?

"A. Yes, sir.

"Q. And that was against the instructions of Mr. Russell, wasn't it?

"A. Yes, sir; it was.

"Q. Would you have honored a check drawn by W. W. Russell on that account?

"A. No, sir; I warned the assistant cashier not to do so.

"Q. Did you notify either the plaintiff C. P. Russell or W. W. Russell that the money had arrived?

"A. I did not. I don't think I did. . . .

"Q. I believe you testified he specifically gave instructions that the money should not be deposited?

"A. Why, yes, I think he did, especially to his own account."

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