State v. Mckinley County Bank.In Re Robb

• Decision Date: 07 January 1927
• Docket Number: No. 2988.,2988.
• Citation: 252 P. 980,32 N.M. 147
• Parties: STATEv.McKINLEY COUNTY BANK.In re ROBB et al.
• Court: New Mexico Supreme Court

32 N.M. 147

252 P. 980

STATE

v.McKINLEY COUNTY BANK.In re ROBB et al.

No. 2988.

Supreme Court of New Mexico.

Jan. 7, 1927.

Syllabus by the Court.

Whether a bank, as to the proceeds of paper held by it for collection, is a debtor or a trustee, depends upon the agreement as to the disposition of the proceeds.

Instructions to return the proceeds of a collection, according to banking custom of which judicial notice is taken, authorize the bank, on remitting by draft, to appropriate the money collected and treat it as its own.

The payee of a draft, drawn and remitted, pursuant to instructions, in return of the proceeds of a collection, is a creditor not entitled to preference in the assets or cash resources of an insolvent bank in the hands of its receiver.

A deposit made in an insolvent bank, whose officers know of its insolvency and have fixed the time for its suspension, is received in fraud, and may be followed as a trust.

It is not necessary to the impressment of the trust that the deposit made as in 4, supra, be identified as a specific thing if it can be traced to the bank's cash resources, since there is a presumption that payments from such cash resources, after receipt of the deposit, were from the bank's own funds, and not from those held in trust.

A deposit made as in 4, supra, is proper basis of a “preference,” when it appears that the cash resources in the bank, from the time of such deposit, and which came into the hands of the receiver, exceeded the amount thereof.

Appeal from District Court, McKinley County; Holloman, Judge.

Action by the State against the McKinley County Bank, in which Frank B. Mapel was appointed receiver, and in which Everret Robb and others presented claims. From a judgment impressing assets in the hands of the receiver with trusts in favor of the claimants, the receiver appeals. Affirmed in part, and reversed in part, and remanded, with directions.

Instructions to return the proceeds of a collection, according to banking custom of which judicial notice is taken, authorize the bank, on remitting by draft, to appropriate the money collected and treat it as its own.

H. C. Denny, of Gallup, and John F. Simms, of Albuquerque, for appellant.

J. W. Chapman, of Gallup, for appellees.

WATSON, J.

The district court of McKinley county rendered judgment impressing the assets in the hands of the receiver of the McKinley County Bank with a trust in favor of appellee Robb in the sum of $1,160, and in favor of appellees the Colorado Milling & Elevator Company and the First National Bank of Pueblo, Colo., in the sum of $1,837.03, requiring such sums to be paid out of such assets prior to any distribution to unsecured creditors. The receiver has appealed from such judgment.

As we desire the exact facts upon which this decision is based to appear in the opinion, we insert here the findings of the trial court, the correctness of which is not in controversy:

“(1) On the evening of Friday the 17th day of August, 1923, after the close of business, a meeting was held in the city of Gallup by the officers of the McKinley County Bank, together with some of their friends and other banking officials, at which time the advisers of the bank and the officers then present determined and knew that the bank was insolvent, and it was agreed that the bank would continue to run on Saturday, August 18, 1923, keeping all the transactions of that day separate from former business, and at the closing of business on Saturday at noon the bank should be placed in the hands of the state bank examiner.

(2) The bank opened on Saturday, August 18, 1923, and remained opened until noon, at which time it was closed and placed in the hands of the state bank examiner of New Mexico.

(3) During Saturday morning, August 18, 1923, Mrs. W. G. Hearst, who was the holder of a certificate of deposit in the said bank, which she had held for some time previous, came into the bank accompanied by Mr. Everret Robb, the claimant, and surrendered her certificate of deposit to Mr. Sam Bushman. the vice president of the bank, with the request that her note in the bank be canceled out of the proceeds of the certificate of deposit, and that the balance of the certificate, amounting to $1,160, over and above her note, be paid to Mr. Robb, who was then present. Mrs. Hearst was making a real estate deal with Mr. Robb. Mr. Bushman surrendered Mrs. Hearst's note, took up her certificate of deposit slip in his name for $1,160, which Mr. Robb accepted and left the bank. The bank closed at noon on the same day. The deposit slip for the credit of Mr. Robb was not worked into the bank's books until about the 20th day of the month of August, when the bank examiner made the entry through one of his deputies in charge of the bank. No actual money played any part in the transaction, which was consummated entirely with the certificate of deposit of the bank in favor of Mrs. Hearst and by the deposit slip for the balance, after deducting Mrs. Hearst's note, which deposit slip was given to Mr. Robb, who had no knowledge that the bank was then insolvent.

(4) That on or about the 14th day of August, 1923, the First National Bank of Pueblo, Colo., a national banking corporation, forwarded to the McKinley County Bank for collection and remittance a check of $1,835 drawn by the Gallup Mercantile Company on the Gallup State Bank, which is located in the city of Gallup; the check being payable to the order of the Colorado Milling & Elevator Company of the Pueblo Flour Mills, the trade-name of that corporation, and was by it indorsed to the First National Bank of Pueblo. On Friday August 17, 1923, the McKinley County Bank collected the amount of the check $1,835 from the Gallup State Bank, and on the same day gave its draft No. 13584 for $1,837.03 on the Continental & Commercial National Bank of Chicago, drawn in favor of the First National Bank of Pueblo, and on that day, Friday, August 17, 1923, deposited the draft in the mail, addressed to the First National Bank of Pueblo. The draft was not paid. The first National Bank of Pueblo did not have an account with the McKinley County Bank, nor did the McKinley County Bank have an account with the First National Bank of Pueblo. The McKinley County Bank received the $1,835 from the Gallup State Bank, and while the sum of $1,835 was not kept separate or earmarked in any way by the McKinley County Bank, there was on hand in the McKinley County Bank more than that amount of cash at the time it closed, and the receiver, when he took over the McKinley County Bank, had more than that amount of cash on hand. That the letter of transmittal accompanying the check from the First National Bank of Pueblo to the McKinley County Bank listed the item forwarded, and contained the words ‘for credit or return.’ That the said words are generally understood by the banking profession to mean, and it is the custom, that when the forwarding bank has an account with the corresponding bank the money realized from the collection shall be placed to the credit of the forwarding bank, and where it does not have an account with the corresponding bank the letter shall forthwith, upon making collection, immediately remit to the forwarding bank the money so collected.”

We find it convenient to dispose, first, of that part of the judgment bearing upon the claim of the Colorado Milling & Elevator Company and First National Bank of Pueblo. To support this branch of the judgment reliance is placed upon First National Bank of Raton v. Dennis, 20 N. M. 96, 146 P. 948. Regarding that case, appellant contends that, “in so far as the opinion announces the rule that the relation of debtor and creditor did not exist,” the holding is not sound in principle, is contrary to the weight of authority, and should be overruled. He further contends that the decision is not controlling because the case at bar is distinguishable.

It is plain that the two cases are distinguishable in their facts. In the Dennis Case the collecting bank, instructed to collect and “remit or return” the amount collected, violated its instructions and failed to make remittance. In the case at bar, the collecting bank, instructed to collect and return, strictly observed its instructions, and made remittance by Chicago exchange on the very day of collection. Whether this distinction is important will appear as we proceed to determine the true import of the Dennis decision. It must, of course, be interpreted in the light of the facts there existent and of the contentions there made.

Both counsel in the Dennis Case admitted the general rule as there laid down, that, in the absence of an agreement to the contrary, the collecting bank and the owner of the paper sustain to each other, in respect to the money collected, the relation of debtor and creditor. As to that general rule, we have no question here.

The appellee in that case contended, however, that the general rule was subject to but one exception, namely, that, in case the proceeds of the collection came into the hands of the bank, when insolvent to the knowledge of its officers, the relation of trustee and cestui que trust arose with respect to such proceeds, because of the fraud in receiving the money under such circumstances. Such a situation was not present in the Dennis Case; nor do we have it here.

This court, however, did not accede to the appellee's contention just stated, but held that another case of fraud constituted an exception to the general rule, namely, a violation by the collecting bank of its agency agreement. It was because of fraud of that kind that the trust was declared in the Dennis Case. There was none such in the case at bar.

[1] If we have so far read aright, it was the fraudulent conduct of the bank which gave rise to the trust. Further, it is the true intent of the agreement of the parties which determines the relation existing between them, whether of debtor and creditor, or of trustee...