United States Nat. Bank of Portland (Oregon) v. D.W. Standrod & Co., Bankers

• Decision Date: 03 July 1926
• Citation: 42 Idaho 711,248 P. 16
• Court: Idaho Supreme Court
• Parties: THE UNITED STATES NATIONAL BANK OF PORTLAND (OREGON), a Corporation, Appellant, v. D. W. STANDROD & COMPANY, BANKERS, a Corporation of Blackfoot, Idaho, and E. W. PORTER, as Commissioner of Finance of the State of Idaho, Respondents

248 P. 16

42 Idaho 711

THE UNITED STATES NATIONAL BANK OF PORTLAND (OREGON), a Corporation, Appellant, v. D. W. STANDROD & COMPANY, BANKERS, a Corporation of Blackfoot, Idaho, and E. W. PORTER, as Commissioner of Finance of the State of Idaho, Respondents

Supreme Court of Idaho

July 3, 1926

BANKS AND BANKING-INSOLVENT BANK-TRUST FUND-EVIDENCE-SHOWING REQUIRED TO IMPRESS TRUST.

1. Where bank on receipt of draft in trust wrongfully indorsed it to president, and immediately reaccepted it for deposit it was still charged with trust as respects priority.

2. As respects priority, evidence held insufficient to establish that funds held in trust by bank came into hands of receiver on bank's insolvency.

3. In order that one claiming trust fund may impress trust on property of defunct bank, to obtain priority he must trace such fund into hands of bank.

APPEAL from the District Court of the Sixth Judicial District, for Bingham County. Hon. Ralph W. Adair, Judge.

Action to compel classification of claim against insolvent bank under Sess. Laws 1921, of chapter 42, section 13, subdivision 2. From judgment allowing classification under subdivision 4 plaintiff appeals. Affirmed.

Judgment affirmed. Costs to respondents.

John W Jones and Guy Stevens, Platt, Platt, Fales & Smith, for Appellants.

Where one bank transmits to another an item for collection and remittance with specific instructions, and the receiving bank collects the item without remitting to the sending bank, and the receiving bank goes into the hands of a receiver, the sending bank has a preferential claim on all the assets of the receiving bank. (National Life Ins. Co. of Vermont v. Mather, 118 Ill.App. 491; Zane, Banks & Banking, secs. 133, 341; Wallace v. Stone, 107 Mich. 190, 65 N.W. 113; German Fire Ins. Co. v. Kimble, 66 Mo.App. 370; Griffin v. Chase, 36 Neb. 328, 54 N.W. 572; Boone County Nat. Bank v. Latimer, 67 F. 27; Jones, Collateral Securities, secs. 40, 41, 42, 43, 44; Harding v. Eldridge, 186 Mass. 39, 71 N.E. 115; Hickok v. Couperthwait, 134 A.D. 94, 122 N.Y.S. 78; Fairbanks v. Sargeant, 117 N.Y. 320, 23 N.E. 1039, 6 L. R. A. 475; American Can Co. v. Williams, 178 F. 420, 101 C. C. A. 604; First National Bank v. Dennis, 20 N.M. 96, 146 P. 948.)

A trustee who converts the trust property to his own use or diverts such property from the trust purposes to the use of the trustee becomes unjustly enriched to the amount and value of the trust property, and creates an equitable debt in favor of the beneficiary against the trust estate. (Hawaiian Pineapple Co. v. Browne, 69 Mont. 140, 220 P. 1114.)

Accordingly, the beneficiary may enforce his claim against the whole of the trust estate. (Russell v. Bank of Nampa, 31 Idaho 59, 169 P. 180; Fralick v. Coeur D'Alene Bk. & Tr. Co., 36 Idaho 108, at 117, 210 P. 586; Smith v. Fuller, 86 Ohio St. 57, Ann. Cas. 1913D, 387, 99 N.E. 214, L. R. A. 1916C, 6; Continental Nat. Bank v. Weems, 69 Tex. 489, 5 Am. St. 85, 6 S.W. 802; Hunt v. Townsend (Tex.), 26 S.W. 310; Thompson v. Gloucester City Sav. Inst. (N. J), 8 A. 97; Hutchinson v. National Bank of Commerce, 145 Ala. 196, 41 So. 143; State v. Thum, 6 Idaho 323, 55 P. 858; Peters v. Bain, 133 U.S. 670, 10 S.Ct. 354, 33 L.Ed. 696.)

Trust money held by a bank does not lose its trust character although deposited by an officer of the trustee bank to his own credit. (Central National Bank v. Connecticut Mut. Life Ins. Co., 14 Otto (U. S.), 54, 26 L.Ed. 693; Oklahoma State Bank v. Galion Iron Works, etc., 4 F.2d 337.)

Roy L. Black, for Respondents.

The burden of tracing the fund into, and showing that it is a part of the assets of the insolvent bank, is upon the claimant of the trust fund. The appellant not only failed to trace said fund into the hands of the receiver, but the evidence affirmatively shows that all of the proceeds received by the Standrod bank from the Brice York note went out of the bank through the account of C. W. Berryman and that no part of the proceeds of the Brice York note remained in the Standrod bank assets in any form when the receiver took charge, or afterwards. (Boone County National Bank v. Latimore, 67 F. 27; Riley v. Callahan Milling Co., 28 Idaho 525, 155 P. 665; Arnold Investment Co. v. Citizens' State Bank, 98 Kan. 412, 158 P. 68, L. R. A. 1916F, 822; Honer v. Hanover State Bank, 114 Kan. 123, 216 P. 822; Nelson v. Paxton, 113 Kan. 394, 214 P. 784; Nonotuck Silk Co. v. Flanders, 87 Wis. 237, 58 N.W. 383; Spiroplos v. Scandinavian Bank of Tacoma, 116 Wash. 491, 16 A. L. R. 181, 199 P. 997; Zimmerli v. Northern Bank and Trust Co., 111 Wash. 624, 17 A. L. R. 192, 191 P. 788; State v. Bank of Commerce, 54 Neb. 725, 75 N.W. 28; Clinton Min. & Mineral Co. v. Trust Co. of No. America, 35 S.D. 253, 151 N.W. 998; Slater v. Oriental Mills, 18 R. I. 352, 27 A. 443; Lusk Dev. & Impr. Co. v. Glinther, 32 Wyo. 294, 232 P. 518; Beard v. Independent School Dist., 88 F. 375, 31 C. C. A. 562; Empire State Surety Co. v. Carroll County, 194 F. 593, 114 C. C. A. 435.)

TAYLOR, J. William A. Lee, C. J., and Wm. E. Lee and Givens, JJ., concur. Budge, J., sat at the hearing, but took no part in the decision.

OPINION

TAYLOR, J.

--Plaintiff, appellant, United States National Bank of Portland, Oregon, brought this action against D. W. Standrod & Company, Bankers, and E. W. Porter, commissioner of finance in charge of said defendant as an insolvent bank, to secure the allowance of a claim and to impress the amount thereof upon the assets of the bank as held in trust for plaintiff.

During the year 1922, plaintiff made a loan to C. W. Berryman and others. As collateral security for the liability of C. W. Berryman, there was, among other items, pledged and delivered to plaintiff a note of one Brice York and wife, in the sum of $ 13,369, with a real estate mortgage securing the same, both dated January 1, 1922, payable two years after date to the order of C. W. Berryman at the banking house of D. W. Standrod & Company at Blackfoot. During all the transactions recited, C. W. Berryman was president, and W. F. Berryman, his son, was cashier, of the defendant bank. The plaintiff was defendant's Portland correspondent, to which it made remittances as such, and with which it maintained a credit balance.

In June, 1923, Brice York arranged to refund his mortgage indebtedness by securing through the Federal Land Bank of Spokane, Washington, a new loan of $ 11,700, secured by mortgage, and giving a second note and mortgage to C. W. Berryman for the unpaid balance of $ 3,324.50. In closing this transaction, the Spokane bank, by letter of June 25, 1923, to Mr. E. M. Gregg, secretary and treasurer of the Blackfoot local Federal Farm Loan Association, sent a draft on the Old National Bank of Spokane, in the sum of $ 11,700, drawn in favor of D. W. Standrod & Company, reciting it to be for the purpose of paying and "to be used in payment of mortgage for $ 13,369, dated January 1, 1922, executed by Brice York, et ux., to C. W. Berryman." The letter further recited:

"The note and mortgage being paid may be cancelled and delivered to the borrower, if you will advise us that you have done so, but proper release of the mortgage must be forwarded to us. . . .

"No use is to be made of these drafts unless all our requirements can be complied with."

A copy of this letter of instructions was sent to the defendant bank. The letter and draft were delivered to the bank on June 28, 1923. This draft was indorsed by the defendant bank by W. F. Berryman, cashier, and on June 28, 1923, was forwarded by it to plaintiff for credit, and the defendant bank charged plaintiff on that day with $ 11,700 in its general commercial account between them. The Standrod bank received credit for this amount by plaintiff on June 30, 1923, in its account between them. On June 29, 1923, after the Standrod bank had received and forwarded the $ 11,700 draft for credit, it, by W. F. Berryman, cashier, wrote to plaintiff as follows:

"June 29th, 1923.

"United States National Bank,

"Portland, Oregon.

"Gentlemen:

"You are holding a note of C. W. Berryman's as collateral for a note signed by Brice York, secured by mortgage. Mr. York is securing a loan from the Federal Land Bank, amount $ 10,000.00, C. W. Berryman agreeing to take a second mortgage for the balance. We are wondering if you would be willing to release this security upon payment of $ 10,000.00 which he is to receive from the Loan Company.

"Very truly yours,

"W. F. BERRYMAN,

"BB. Cashier."

On July 2d, the plaintiff acknowledged this letter with this statement:

"We are agreeable to releasing the note upon payment of $ 10,000 to us, and we are sending to you under separate cover the note for this purpose."

The Standrod bank had not disclosed and did not disclose to plaintiff that it had already received the $ 11,700 draft, or at any time remit any sum to plaintiff to apply upon or pay this $ 10,000.

In addition to the $ 11,700, Brice York gave a new note and second mortgage for $ 3,324.50, the note payable to D. W. Standrod & Company, and the mortgage payable to C. W. Berryman, mortgagee. This note and mortgage did not, for some unexplained reason, come into the hands of the commissioner. The bank became insolvent, and was taken in charge by the defendant commissioner on November 29, 1923. Brice York paid this new note to C. W. Berryman December 8, 1923, some eight days after the bank closed, and he satisfied the mortgage.

W. F Berryman, the son, testified that Gregg came in the bank and delivered the Spokane draft to his father, C. W. Berryman, who, without indorsing the draft, which was on its face payable to the bank, handed the draft to Berryman, the son, cashier; that he, the son, made a certificate of deposit to...