Widman v. Kellogg

• Decision Date: 19 December 1911
• Citation: 133 N.W. 1020,22 N.D. 396
• Parties: WIDMAN v. KELLOGG et al.
• Court: North Dakota Supreme Court

22 N.D. 396

133 N.W. 1020

WIDMAN

v.KELLOGG et al.

Supreme Court of North Dakota.

Nov. 18, 1911.

Rehearing Denied Dec. 19, 1911.

Syllabus by the Court.

This appeal is before this court on the judgment roll alone. The findings, among other things, are to the effect that appellant was required, as a local agent of the Great Northern Railway Company and another, to transmit his receipts each day to his principals in St. Paul, and that it was his custom to go to the bank and deposit such receipts, and receive therefor, from the bank, drafts payable to the order of his principals, and forthwith to transmit the same. It was also found that on four days named he followed this custom, and that the drafts so procured and forwarded to St. Paul were dishonored because no funds were on deposit with the correspondent of the local bank with which to pay them; that the officers of the bank knew of his employment and the purpose for which such drafts were obtained. The record contains no findings that he kept any general account or drew any checks on the local bank. Held that, in view of this custom and the findings as a whole, the word “deposit” must be construed as indicating the payment into the bank of each day's receipts in exchange for the drafts; and that he stood in relation to the bank as a purchaser for cash of drafts.

Section 4660, R. C. 1905, prohibits insolvent state banks from receiving any money, bank bills, notes or currency, bills or drafts; and section 4661 makes any official of an insolvent bank who receives money, etc., guilty of a felony. The defendant bank had been hopelessly insolvent for some time prior to the purchase of the drafts mentioned, and it had no funds with its correspondent bank out of which they could be paid; and such officials had no reason to anticipate their being honored. Held, that such money was received by the bank without consideration, and, in effect, under false pretenses or representations; that thereby a fraud was perpetrated upon appellant, the effect of which was to make the bank a trustee ex maleficio of such funds.

On a receiver being appointed for such bank, in a proceeding under the statute to wind up the affairs of insolvent corporations, he had no greater rights in such funds or moneys than those possessed by the insolvent bank, and succeeded the bank as trustee.

The fact that the bank closed its doors within four business days after the first of the transactions described, and the next day after the last one, and that money in more than double the amount of the claim of appellant was turned over to the receiver by the bank, and other elements of the findings of the trial court, lead to the conclusion that both the money assets of the bank and those received by the receiver were enhanced by the transactions described.

When a trustee mingles trust funds with his own and subsequently pays out a portion of the commingled funds, it will be presumed that he made his payments from that portion of the fund belonging to himself and retained the funds which did not belong to him; and, except in so far as he may distinguish what is his own, the whole fund will be treated as the trust property.

The trusteeship of the bank and of the receiver being established, it being conceded that the moneys of appellant were commingled with the funds of the bank, and respondents having failed to show that moneys paid out in the meantime were the original trust funds, and likewise having failed to show that appellant's money was not included in that turned over to the receiver, appellant is entitled to recover.

When such trust funds are not commingled with any of the assets of the bank, except the cash assets, the preference of appellant is limited to the cash funds of which the receiver took possession, when distinguishable from the other assets of the estate going into his hands.

Appellant is entitled to preference to the extent of the moneys turned over to the receiver.

The rights of other claimants, if any, to preference, not being before this court, appellant's rights relative to them are not determined, but it is suggested that the ends of justice would be promoted by proceeding on the part of claimants to preference, in such cases, by intervention rather than by independent action against the receiver.

Appeal from District Court, Nelson County; Templeton, Judge.

Action by L. C. Widman against George A. Kellogg, as receiver of the People's State Bank, and another. From a judgment for defendants, plaintiff appeals. Reversed.

The appellant brought this suit against the defendant Kellogg as receiver of the People's State Bank, and the People's State Bank, a corporation organized under the banking laws of this state, seeking to establish and recover as a preferred claim the sum of $1,074.95. We take the facts from the findings of the trial court, omitting formal matters.

The People's State Bank referred to was between November, 1892, and January 26, 1910, engaged in the general banking business at Lakota. It became insolvent on or prior to August 1, 1909, and so continued until January 26, 1910, when it suspended business, and the state examiner took charge of its assets until March 8, 1910, when the same were turned over to the respondent Kellogg, as receiver, pursuant to an action brought by and through the Attorney General to obtain a judgment of dissolution, pursuant to the provisions of chapter 27, R. C. 1905. The appellant was at all times material the agent of the Great Northern Express Company and the Great Northern Railway Company, corporations under the laws of Minnesota, at Lakota. It was his duty to receive the funds of said corporations, and promptly transmit them to his principals in St. Paul, Minn., and it was his custom in transmitting such funds to deposit the same in said People's State Bank and “receive therefor” drafts issued in the name of his respective principals, which he forwarded them by mail. This custom had been continued for some time and was well known to the bank and its officers, as also was his relation to such corporations. Appellant became personally responsible for the funds so remitted, and the drafts received by his principals were charged by them to him, and he is the owner thereof. He did not know, and had no reason to know or believe, prior to January 26, 1910, that said bank was insolvent, but the officers of said bank knew or in the regular performance of their duties ought to have known of its insolvency at all times subsequent to August, 1909. The amounts involved in this action are drafts purchased by appellant as follows, omitting names of his principals, which are immaterial here:

+---------------------------+
                ¦January 21, 1910 ¦$ 103 20 ¦
                +-----------------+---------¦
                ¦January 22, 1910 ¦119 82   ¦
                +-----------------+---------¦
                ¦January 22, 1910 ¦470 66   ¦
                +-----------------+---------¦
                ¦January 24, 1910 ¦56 44    ¦
                +-----------------+---------¦
                ¦January 25, 1910 ¦324 83   ¦
                +-----------------+---------¦
                ¦Total            ¦$1,074 95¦
                +---------------------------+
                

All such drafts were drawn on the Security National Bank of Minnesota and transmitted to appellant's employers forthwith and immediatelypresented for payment and protested for want of funds. At the time they were drawn and presented the People's State Bank did not have on deposit with its correspondent the funds to meet said drafts, or any of them, and the officers of the People's State Bank, and those issuing such drafts, knew or in the performance of their duties ought to have known that fact. The drafts have never been paid. The People's State Bank continued to carry on its business in the usual manner, paying out money on checks and otherwise, receiving deposits and making collections and issuing drafts, and receiving money therefor from the time the first above-mentioned draft was drawn until the night of January 26, 1910. It had on hand in cash on the 21st day of January, 1910, $14,436.88. At the close of business, January 26, 1910, there was on hand cash in the sum of $2,774.08. No part of this latter sum can be identified as the identical money paid by appellant to said bank, or as the proceeds thereof, or of any checks or drafts delivered by him to it, for which said drafts on the Security Bank were issued. It received deposits between the morning of the 21st and the closing of its doors aggregating over $13,000, and paid out money on checks amounting to over $17,000. Its certificates of deposits increased about $800 during such time. At the time this action was brought the receiver had in his possession approximately $25,000 in money and other assets worth $15,000 belonging to said People's Bank. It is conceded by respondent that the funds paid for the drafts by appellant were mingled with the general fund of the bank.

Other findings show that the bank at all such times was hopelessly insolvent by reason of the embezzlement of its funds by certain of its officers, and that its true condition had been concealed by them.

Judgment was given against the appellant to the effect that his claim was not entitled to be preferred, and dismissing his action. From such judgment he appeals.

Frich & Kelly, for appellant. Bangs & Robbins, for respondents.

SPALDING, C. J. (after stating the facts as above).

It is claimed by counsel for respondent that the authorities applicable to the facts disclosed in this case are in hopeless conflict; that the ancient rule in equity was that property impressed with a trust, which it is claimed by respondent this is, cannot be reclaimed unless the specific property involved can be fully and specifically identified. It is admitted that several courts have modified this rule in recent years and permitted recovery for such property in certain instances. A vast number of authorities are cited on the subject and an attempt is made to trace the course of such determinations, but it is also claimed that the trend of the latest authorities...