The First National Bank of Sharon v. The Valley State Bank

• Decision Date: 10 June 1899
• Docket Number: 11250
• Citation: 60 Kan. 621,57 P. 510
• Parties: THE FIRST NATIONAL BANK OF SHARON, PENNSYLVANIA, v. THE VALLEY STATE BANK, OF HUTCHINSON, KANSAS, et al
• Court: Kansas Supreme Court

57 P. 510

60 Kan. 621

THE FIRST NATIONAL BANK OF SHARON, PENNSYLVANIA, v. THE VALLEY STATE BANK, OF HUTCHINSON, KANSAS, et al

No. 11250

Supreme Court of Kansas

June 10, 1899

Decided January, 1899.

Error from Reno district court; MATTHEW P. SIMPSON, judge.

Judgment affirmed.

W. M Whitelaw, and Frank S. Whitelaw, for plaintiff in error.

Prigg & Williams, for defendants in error.

DOSTER C. J. JOHNSTON, J., and SMITH, J., concurring. DOSTER, C. J dissenting.

OPINION

DOSTER, C. J.:

This was an action brought by the plaintiff in error to recover money as a trust fund belonging to it which had been deposited in a bank by another in his name. October 25, 1895, one C. B. Evans executed to one W. E. Hutchinson a promissory note for $ 4500, and secured it by a mortgage on 250 head of cattle. Hutchinson immediately transferred this note and mortgage to one M. B. Abell, of Kansas City, Mo., who in turn immediately transferred them to plaintiff in error. Immediately after, or possibly before this last transfer, Hutchinson, as the agent of Abell, shipped the cattle to Kansas City and sold them for $ 5540. This sum was sent through the medium of a bank in Kansas City to one of the defendants in error, the Valley State Bank, and placed to the credit of Hutchinson in a general-deposit account kept by him. Hutchinson at that time was president of this bank. November 1, 1895, Hutchinson informed one Wilfley, the cashier of the Valley State Bank, that the deposit to his credit of the $ 5540 was the proceeds of the sale of the cattle mortgaged by Evans to him to secure the note of $ 4500, and which he had transferred to Abell, and that he desired his account debited with $ 4500 and the amount remitted to Abell in payment of the note. Wilfley replied that he would do as desired, and Hutchinson supposed that he had done so; however, he did not do so, which fact Hutchinson discovered about January 3, 1896. Intermediate the giving of the direction to the cashier and the discovery that it had not been complied with, Hutchinson made additional deposits of his own funds to the credit of his general account, and drew checks upon it. Often the credit side of his account, including the before-mentioned deposit of $ 5540, was less than the $ 4500 he had directed to be remitted, running at one time as low as about $ 500, so that Hutchinson must have known that the remittance was not made to Abell, or else must have known that he was largely overdrawing his account.

When Hutchinson discovered that the Abell note had not been paid, he had to his credit at the bank $ 3800. He borrowed $ 700 more from the bank, giving his note therefor, and directed that the $ 3800 to his credit and the amount borrowed be remitted to Abell in payment of the $ 4500 note, of which he still supposed Abell to be the owner. The assistant cashier, one Welch, objected to the use of these funds for the payment of the Abell note, because Hutchinson was and for several months had been indebted to the bank in the amount of another note for $ 4500, also given to him by the before-mentioned Evans, which note Hutchinson had sold and indorsed, and which upon its maturity the bank had paid for him as indorser, and which it still held against him as an obligation due to it. According to the desire of Welch the money was not remitted in payment of the Abell note, but was used to discharge Hutchinson's indebtedness due to the bank on the other note; that is, Hutchinson's deposit account of $ 3800, increased by the $ 700 loan, was debited with the amount of his note. It is not clear whether Hutchinson finally assented to this arrangement. As to all other facts above stated there is no substantial dispute. The Valley State Bank went out of business and turned its assets over to the Bank of Hutchinson, which bank became insolvent and is in the hands of John M. Kinkel as receiver. Without going into a detailed explanation, it is sufficient to say that, under the circumstances shown in evidence, if the Valley State Bank was liable to the plaintiff in error, the First National Bank of Sharon, Pennsylvania, the Bank of Hutchinson, and Kinkel, as its receiver, are likewise liable. The district court held in favor of the defendants, and the plaintiff prosecutes error to this court.

Counsel for plaintiff in error vehemently assert that the deposit of $ 5540, the proceeds of the sale of the mortgaged cattle, was charged with a trust to the extent of the note of $ 4500 which had been transferred to Abell and to the plaintiff in error, and that the Valley State Bank was charged with notice of such trust when informed by Hutchinson of the source from which the deposit of cattle money was derived, and was directed to remit the necessary amount in payment of the note. It is without doubt true that an agent cannot make the funds in his hands belonging to his principal his own funds by depositing them to his own credit in a bank. He cannot, as to the bank, make them his own funds if the bank has notice of the real ownership, provided the bank still has them, or their representative, on hand, so that they can be followed and reclaimed by the real owner. The difficulty, however, in such a case as this, is to determine the extent of the agent's authority over the fund, after he has deposited it to his credit, when no notice of ownership other than what the agent himself imparts is given to the bank. Does the agent depositing his principal's fund in his own name part, as against the bank, with all dominion or authority over so much of his general account as is represented by the deposit in question, by merely stating to the bank that it belongs to another, and directing it to be paid to him? Can the agent by so doing impose a trust upon the bank, and require the bank to set apart, as it were, so much of the general fund as it is informed belongs to another, so that not even the agent and depositor, any more than a stranger, can exercise control over it? We think not. Upon this precise question to which the contention of the parties becomes reduced we have not been favored by counsel on either side with any authorities, or with any close reasoning, and with the amount of other labor necessarily devolving upon us we are unable ourselves to brief cases, as it were, or make much original research among the books. To the extent that we have been able to investigate, we have found no ca...