Shippee v. Pallotti, Andretta & Co., Inc.

• Decision Date: 07 November 1933
• Citation: 168 A. 880,117 Conn. 472
• Parties: SHIPPEE, Bank Com'r, v. PALLOTTI, ANDRETTA & CO., Inc.
• Court: Connecticut Supreme Court

168 A. 880

117 Conn. 472

SHIPPEE, Bank Com'r, v. PALLOTTI, ANDRETTA & CO., Inc.

Supreme Court of Errors of Connecticut.

November 7, 1933

Appeal from Superior Court, Hartford County; Patrick B O'Sullivan, Judge.

Petition by Lester E. Shippee, Bank Commissioner, against Pallotti Andretta & Co., Inc., claiming priority of payment for a claim for the amount of drafts, sent to the defendant for collection with bills of lading attached which were to be delivered upon payment of the drafts, but which were delivered without receiving payment; the Superior Court ordered the claim allowed in amount but disallowed the claimed preference over deposits and general claims, and the claimant appealed. No error.

Aaron Nassau and Francis P. Rohrmayer, both of Hartford, for appellant.

Frank Covello and John L. Bonee, both of Hartford, for appellee.

Argued before MALTBIE, C.J., and HAINES, HINMAN, BANKS, and AVERY JJ.

HINMAN, Judge.

The finding discloses the following material facts: The defendant was a private banker and on December 23, 1930, because of insolvency, its functions were suspended by the appointment of a receiver. The Duluth Superior Milling Company hereinafter referred to as the mill, is engaged in the flour mill business with a principal office in Duluth, Minn. The First National Bank of Superior, Wis., does its banking business. Joseph J. Regina is engaged in the business of selling flour in Hartford and vicinity, and the mill sold him flour in carload lots, the price being payable on arrival; when a car was shipped a draft was drawn and attached to the bills of lading. At the suggestion of Regina the drafts and the bills of lading were sent to the defendant for collection. Each draft sent by the mill through its bank had stamped across the face, " This draft is a cash item and it is not to be treated as a deposit. The funds obtained through its collection are to be accounted for to us and are not to be commingled with other funds of collection bank." Each draft also contained an instruction that " this draft must be paid upon arrival of goods. Surrender bills of lading only upon payment of draft." The defendant, as the collecting bank, received only a collection fee for handling these drafts and was not to commingle the funds or credit them to the mill, but transmit them immediately to the mill. For a release of the bill of lading attached to a draft when the draft was not paid upon arrival, it was customary for the mill through the forwarding bank to send telegraphic advice.

In the regular course of business, from November 1, 1930, to November 26, 1930, five drafts with bills of lading attached were sent to the defendant, and these bills of lading were released and surrendered by the manager of the defendant to Regina without written telegraphic authorization and without payment of the drafts to which they were attached. The drafts have remained in the bank unpaid and the mill has never been paid the amount of them.

The conclusions reached from the facts found were that the relationship between the mill and the defendant was that of principal and agent; the agent having violated its instructions as to the manner of handling the drafts is liable to the mill for the loss sustained by the latter, which is $6,374.51, with interest; this claim falls within class (3) of section 3955 of the General Statutes, and is entitled to no preference over general creditors or depositors; no trust was impressed upon funds of the defendant in favor of the mill, as no funds from the payment of the drafts upon which a trust might have been declared ever came into the hands of the defendant.

It has been well established, and the defendant's receiver does not deny, that if a bank receiving for collection a draft with bill of lading attached, under instructions to deliver the latter only upon payment of the draft, surrenders the bill of lading without collecting the draft, it is liable for the loss sustained by reason of such unauthorized action. Merchants' & Manufacturers' Bank v. Stafford National Bank, 44 Conn. 564, 567, F. Cas. No. 9,438; National Bank of Commerce v. Merchants National Bank, 91 U.S. 92, 23 L.Ed. 208; Commercial Bank v. Union Bank, 11 N.Y. 203, 211; Peninsular Bank v. Citizens' National Bank, 186 Iowa, 418, 172 N.W. 293, 19 A.L.R. 547 and note, page 583; Second National Bank v. Bank of Alma, 99 Ark. 386, 138 S.W. 472; Central Trust Co. v. Hanover Trust Co., 242 Mass. 265, 136 N.E. 336; Hibernia Bank & Trust Co. v. Bank of Topeka (C. C. A.) 288 F. 41, 44. In most of the cases involving such a breach of duty, the contention did not relate to the liability of the defendant but to the measure of damages. See note, 19 A.L.R. page 566 et seq. The latter question is not raised by the present appeal, which pertains to the conclusions of the trial court that no trust in favor of the claimant was created by the facts, and that the claim is not entitled to preference over claims of depositors and general creditors. The decisive point is whether the court erred in overruling the claimant's contention that the transactions related by the finding created a trust in its favor.

The instructions of the forwarder being that the drafts were cash and the proceeds of collection of them were not to be treated as a deposit or commingled with other funds of the bank, of the drafts had been collected and the funds thereby obtained had not yet been remitted but remained segregated in the hands of the defendant banker, the latter would be regarded as trustee with respect to those funds. Bassett v. City Bank & Trust Co., 115 Conn. 1, 14, 160 A. 60, 81 A.L.R. 1488. However, no collection was made; the defendant had in hand no fund created by proceeds of collection but only the uncollected drafts. Notwithstanding, the claimant contends for recognition of a trust as to a sum representing the amount of the drafts, through application and operation of the equitable maxim, that " equity regards *** that as done which *** ought to be done." I Pomeroy's Equity Jurisprudence (4th Ed.) § 364.

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