State v. Banking Corporation of Montana

• Decision Date: 06 October 1926
• Docket Number: 5826,5834,5841,5843.
• Citation: 251 P. 151,77 Mont. 134
• Parties: STATE ex rel. v. BANKING CORPORATION OF MONTANA et al. RANKIN, Atty. Gen.,
• Court: Montana Supreme Court

251 P. 151

77 Mont. 134

STATE ex rel. RANKIN, Atty. Gen., v. BANKING CORPORATION OF MONTANA et al.

Nos. 5826, 5834, 5841, 5843.

Supreme Court of Montana

October 6, 1926

Rehearing Denied Nov. 24, 1926.

Appeal from District Court, Lewis and Clark County; W. H. Poorman Judge.

Receivership proceeding by the State of Montana, on the relation of Wellington D. Rankin, Atty. Gen., against the Banking Corporation of Montana in which Claude C. Gray was appointed receiver. From an order denying preferences, the Trustees of the Episcopate Fund, the State of Montana, Catherine L. Fay and A. D. Mitchell and others separately appeal, the appeals being consolidated in the Supreme Court. Modified and affirmed.

L. A Foot, Atty. Gen., and A. H. Angstman, Asst. Atty. Gen., for the State.

C. E Pew, of Helena, for Mitchell and others.

William Scallon and J. R. Wine, both of Helena, for Fay

E. D. Phelam, of Helena, for Sweeney.

Walsh & Nagle, of Helena, for Byers.

T. A. Mapes and E. C. Day, both of Helena, for Fidelity & Deposit Co. of Maryland.

Stewart & Brown, of Helena, for Gray and others.

POMEROY District Judge (sitting in place of GALEN, J., disqualified).

The Banking Corporation of Montana, being insolvent, failed to open its doors for business on the morning of the 2d of May, 1923. The district court appointed Claude C. Gray receiver, and he entered upon the discharge of his duties May 16, 1923. During the interim, the bank was in the hands of the state bank examiner. On the 7th day of January, 1925, the receiver filed his petition No. 49 in the district court, setting forth that various creditors of the bank were asserting preferences and asking that the court make an order requiring all such creditors to appear and prove their claims. The order was made, and, after notice given, numerous creditors presented claims for preference. After a full hearing, the court made an order allowing preferences to certain creditors and denying preference to the others. Among the preferred claims allowed were a number aggregating $1,980.77, to be paid proportionately out of the amount of cash on hand in the bank when it failed-$1,891.67. Trustees of the Episcopate Fund, a corporation, was denied a preference and appeals. The state of Montana was denied a preference and appeals. Catherine L. Fay was denied a preference and appeals. A. D. Mitchell, Grace Mitchell, and Martin Clancy appealed from the order in so far as it denied a preference to them and also in so far as it granted a preference to Fidelity & Deposit Company of Maryland, and American Surety Company of New York. Pursuant to stipulation of all the parties involved, the appeals are consolidated in this court.

The Episcopate Fund Appeal.

The Trustees of the Episcopate Fund, a corporation, purchased from the Banking Corporation a note and mortgage which became due February 1, 1922. On February 16, 1923, the Trustees of the Episcopate Fund delivered the note and mortgage to the Banking Corporation, with instructions to collect the same or institute proceedings for the foreclosure thereof. On April 30, 1923, the Banking Corporation accepted in payment of the note and mortgage a draft drawn on the Old National Bank of Spokane for $1,314, and one drawn on the National Park Bank of New York City for $743.32. The amount due was $2,027, and the balance of $30 of the aggregate of the drafts belonged to the Banking Corporation. On April 30, 1923, the Banking Corporation indorsed the Spokane draft to the Helena Branch of the Federal Reserve Bank of Minneapolis and deposited it with that bank for collection. The draft was then forwarded to the Spokane Branch of the Federal Reserve Bank of San Francisco and paid to that bank May 1st. Credit was thereupon given to the Helena Branch Bank. The latter bank never gave credit to the Banking Corporation on out of town items until notified of payment by due course of mail. The proceeds of the collection did not come into the hands of the Banking Corporation, but were applied by the Helena Branch Bank on the Banking Corporation's indebtedness. On final settlement with the Helena Branch Bank, there came into the hands of the receiver $1,390.79 in cash and approximately $80,000 in pledged securities.

On April 30, 1923, the Banking Corporation remitted the draft for $743.32, drawn on the National Park Bank of New York City to its correspondent, the Continental & Commercial National Bank of Chicago. That bank collected the draft and applied the proceeds on the indebtedness of the Banking Corporation. Sufficient of the securities pledged to the Chicago bank by the Banking Corporation were collected by the receiver to wholly discharge the indebtedness of the Banking Corporation. Thereupon the rest of the securities pledged to the Chicago bank were turned over to the receiver and became a part of his trust.

"Except by agreement or usage a bank has no right to take anything but money in payment of paper it holds for collection. If it takes a check, it is agent of the drawer in collecting the check, and not until the money is obtained has it fulfilled its duty as agent of the holder of paper. So that, although it has had such check certified and has credited the amount to the owner of the paper, it is agent to collect; yet, if it becomes insolvent before actually receiving the money on such check, the owner can claim in preference to the general creditors; proceeds received subsequent to insolvency being held in trust." 1 Morse on Banks & Banking (5th Ed.) 247.

To the same effect, see Selover on Bank Collections, p. 242, Zane on Banks & Banking, p. 299, and 2 Michie on Banks & Banking, pp. 1395, 1399, 1433. The record in this case contains no evidence of agreement or usage to prevent the application of the rule.

"As between the cestui que trust and trustee, and all parties claiming under the trustee, otherwise than by purchase for valuable consideration without notice, all property belonging to a trust, however much it may be changed or altered in its nature or character, and all the fruit of such property, whether in its original or its altered state, continues to be subject to or affected by the trust." 3 Pomeroy's Equity Jur. (4th Ed.) p. 2398, and note.

It follows that the cash and pledged securities which came into the hands of the receiver from the Helena Branch Bank and the pledged securities which came into his hands from the Chicago bank came charged with the trust of the Trustees of the Episcopate Fund. Such a result is a logical sequence of the holding of this court in the Stanton Bank Case, which was an appeal from the same order from which this appeal was taken. The decision in that case would necessarily have been the same had the Stanton Bank made its claim only after the funds and securities had reached the hands of the receiver. In that event, the Helena Branch Bank would have paid the receiver $9,965.67 instead of $1,390.79. State ex rel. Rankin v. Banking Corporation, 74 Mont. 491, 241 P. 626.

State's Appeal.

The state claimed preference for moneys deposited with the bank in excess of the amount covered by depository bonds. The court denied a preference to the state to the extent of the moneys deposited by the state treasurer which had come into his hands from the Industrial Accident Board, and from this action of the court the state appeals. These funds were public moneys, under the decision of this court in State ex rel. School District v. McGraw, 74 Mont. 152, 240 P. 812, rendered since the date of the district court's order, and the state is entitled to the preference. There is a dispute between the Attorney General and the attorney for the receiver as to the amount involved. The correct amount of the additional preference to be allowed is $1,503.75, as given in the order of the district court.

Appeal of Catherine L. Fay.

On the 1st day of May, 1918, the Banking Corporation took a real estate mortgage in its name as "trustee for the holders of the obligations hereby secured." The secured obligations were 32 bonds for $500 each, payable to "the Banking Corporation of Montana, trustee or bearer." Bonds numbered 1 and 2 matured November 1, 1918, and bonds numbered 31 and 32 matured May 1, 1926. The habendum clause in the mortgage reads:

"To have and to hold the above-described property unto the trustee to its own proper use, benefit, and behoof, forever, but in trust, nevertheless, under the terms of this mortgage deed, for the uses and purposes herein set forth."

The mortgage provided:

"The trustee, whenever the said bonds shall have been paid in full and according to the terms and provisions in said bonds and herein contained, will deliver to the grantors a good and sufficient deed of acquittance and release hereof."

At some time prior to December 1, 1922, Catherine L. Fay purchased six bonds numbered 24 to 29. No indorsement or assignment appears on any of the bonds. On February 19, 1923, G. W Casteel, as president, and O. A. Tweed, as secretary, executed in the name of the Banking Corporation, as trustee, a full satisfaction of the mortgage, which was recorded in Chouteau county on March 24, 1923. Among the papers of the Banking Corporation which...