Shotwell v. Sioux Falls Savings Bank

• Citation: 147 N.W. 288,34 S.D. 109
• Decision Date: 18 May 1914
• Docket Number: 3500.
• Parties: SHOTWELL v. SIOUX FALLS SAVINGS BANK.
• Court: South Dakota Supreme Court

147 N.W. 288

34 S.D. 109

SHOTWELL v. SIOUX FALLS SAVINGS BANK.

No. 3500.

Supreme Court of South Dakota

May 18, 1914

Appeal from Circuit Court, Minnehaha County; Joseph W. Jones, Judge.

Action by E. M. Shotwell against the Sioux Falls Savings Bank. From a judgment for defendant, plaintiff appeals. Reversed, with directions to enter judgment for plaintiff.

Smith P. J., and McCoy, J., dissenting.

Charles P. Bates, of Sioux Falls, for appellant.

Boyce Warren & Fairbank, of Sioux Falls, for respondent.

WHITING J.

In August, 1912, plaintiff delivered to one Stegner, the operator of a grain elevator, about a car load of wheat belonging to plaintiff. The wheat was delivered to Stegner at the elevator, but was placed in a bin by itself, and kept separate from other wheat. This wheat was not purchased by Stegner, and the agreement between him and plaintiff was that he should ship and sell the wheat for plaintiff. Plaintiff testified that it was expressly understood that the wheat was to be shipped in his name; while Stegner testified that nothing was said as to whose name the grain should be shipped in. Stegner loaded the wheat into a car, and, by a bill of lading in which he was named as consignor, consigned the same to a commission firm at Minneapolis. Upon receiving the bill of lading from the railroad company, Stegner, on August 26th went to defendant, with whom he had a general banking account, and drew a sight draft for $500 on the commission firm. At the time the draft was drawn, it, with the bill of lading, was delivered to defendant bank for deposit, and the bank, at Stegner's request, credited Stegner's general banking account with the amount of such draft. The sight draft, with bill of lading attached, was immediately forwarded by defendant to its Minneapolis correspondent, by whom it was credited to defendant. Upon presentation to the commission firm, the draft was honored. At the time defendant gave Stegner credit for the amount of the sight draft, his general bank account was overdrawn to the amount of $346.65. Defendant, by balancing Stegner's account, immediately applied $346.65 of said $500 to the payment and satisfaction of said overdraft. Between August 26th and September 11th following, Stegner issued checks, in favor of third parties, against his account, sufficient to exhaust the remainder of said $500 deposit. On September 11th defendant's account with Stegner was balanced and closed. On September 23d plaintiff served the following notice on defendant: "To the Sioux Falls Savings Bank: On August 24, 1912, Geo. A. Stegner, of Sioux Falls, drew a draft for $500.00 on Woodward & Company, a grain commission house of Minneapolis, Minn., to apply on the proceeds of the sale of a car load of wheat shipped by him, in his name, to Woodward & Company, *** the bill of lading for the same being attached to the draft, and deposited such draft with you. I am informed that Woodward & Company sold said car load of wheat and from the proceeds thereof paid you the amount of this draft, viz., $500.00, and that you have credited the same to Mr. Stegner's personal account with you. The wheat so shipped by Mr. Stegner to Woodward & Company, and on account of which he drew said draft, belonged to me, and he was not authorized either to ship or sell the same in his own name, but was to ship said wheat to Woodward & Company in my name to sell for me and on my account. The amount received by you from Woodward & Company on said draft belongs to me, and I hereby demanded that you account to me for the amount so received by you and pay the same to me. E. M. Shotwell."

Defendant having refused to account for any part of the proceeds of said wheat, plaintiff instituted this suit. In his complaint plaintiff alleged, in substance, facts as above set forth and prayed judgment; that he be adjudged to be the owner of the $500 draft and the moneys received in payment thereof; that defendant be required to account to him for such moneys; and that he recover from defendant the sum of $500, and interest from September 23, 1912, the date of the demand. At the trial this last prayer was modified, and plaintiff asked judgment for $285.60, and interest, being the $500 less $214.40 that it was shown had been paid out by defendant on Stegner's checks after the deposit of the $500, and prior to the notice. At the close of the evidence, both parties moved for directed verdict. By consent of parties the case was withdrawn from the jury and submitted to the court for determination, findings of fact being waived. The court rendered decision and judgment in favor of defendant, and refused a new trial. Plaintiff appeals from the judgment and order denying a new trial, and assigns insufficiency of the evidence to justify the decision and judgment, and error of the court in not directing a verdict for plaintiff.

Upon this appeal, every issue of fact must be determined in favor of respondent; hence we must presume that the trial court found that nothing was said between respondent and Stegner concerning whose name the grain should be shipped in. Furthermore, if material hereto, we must presume that the trial court found, and rightfully, that Stegner was conducting such a business that, when appellant left his wheat with him, he clothed him with the external indicia of right to sell same, and therefore to pledge it. Nevertheless as between appellant and Stegner the grain and the proceeds thereof remained the property of appellant, and respondent should not be allowed to defend against appellant's claims to such proceeds, except to the extent that respondent has parted with value on the strength of Stegner's apparent authority to sell the grain, and therefore to pledge the bill of lading, unless the facts of this case take it out of the rules governing the passing of title to personal property, and bring it under some exception applicable only to cash and other recognized mediums of exchange. Saltus v. Everett, 20 Wend. (N. Y.) 267, 32 Am. Dec. 541; Fawcett v. Osborn, 32 Ill. 411, 85 Am. Dec. 278. Respondent claims that, when a bank, without notice of the trust character thereof, takes from a trustee, for deposit to the trustee's personal account, cash or other recognized medium of exchange, it can credit such deposit against such trustee's overdraft, and defend against any action by the cestui que trust to recover such trust fund, though, as against such cestui que trust, the deposit was wholly unauthorized and therefore wrongful. Appellant contends for the rule contended for by Bolles in Modern Law of Banking, 501, where the author says: "Why should not the bank be required to refund to the rightful owner in all cases wherein its situation would not be worse than it was before receiving payment? No rule is better established that this: That trust funds do not lose their character by reason of depositing them to the individual account of the depositor. If, therefore, they still possess this character, why should they not be recovered, provided they can still be traced, regardless of their possessor."

It must be admitted that the courts have uniformly recognized a difference between ordinary personal property and cash or other recognized medium of exchange when considering the question of how far the true owner of property can pursue the same or its proceeds, where such property or proceeds has passed into the hands of innocent third persons through the wrongful act of a trustee of such property. In the American decision which perhaps more than any other has been cited and quoted from in the courts of this country it is said: "It is absolutely necessary for practical business transactions that the payee of money in due course of business shall not be put upon inquiry at his peril as to the title of the payor. Money has no earmark. The purchaser of a chattel or a chose in action may, by inquiry, in most cases, ascertain the right of the person from whom he takes the title. But it is generally impracticable to trace the source from which the possessor of money has derived it. It would introduce great confusion into commercial dealings if the creditor who received money in payment of a debt is subject to the risk of accounting therefor to a third person who may be able to show that the debtor obtained it from him by felony or fraud. 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 the title in the holder as to third persons dealing with him and receiving it in due course of business and in good faith upon a valid consideration. If the consideration is good as between the parties, it is good as to all the world. 'Money,' said Lord Mansfield, in Miller v. Race, before cited, 'shall never be followed into the hands of a person who bona fide took it in the course of currency and in the way of his business."' Stephens v. Board of Education, 79 N.Y. 183, 35 Am. Rep. 511.

Pomeroy, in commenting upon the distinction between money and other property as recognized in the decisions following the holding in the Stephens Case, announces, as the sole reason for this distinction, the fact that money is not "earmarked."

The courts should not be unmindful of the necessities of business, and we have no fault to find with the rule announced in the Stephens Case, provided that, in applying such rule, courts will not refuse to shut their eyes to the clear equities of the particular case, and will insist on such rule being subject to that other well-established and most just rule, recognized by this court in Finch et al v. Park, 12 S.D. 63, 80 N.W. 155, 76 Am. St. Rep. 588, Id., 15 S.D. 339, 89 N.W. 654, and which is so clearly set forth in Brand & Co. v....