MERCHANTS' & FARMERS' BANK 11. AUSTIN.
Dermott, 91 Mo. 648, 4 S. W. Rep. 107; Haineav. Haine.s, 6 Md. 435; Porn. Cont. § 114, and citations. But we are of the opinion that a court would not be justified in decreeing specific performance in a case like the one at bar, where by reason of his untimely death the promisor did not in fact enjoy any of the pleasures; benefits, or advantages which he hoped to realize from the society; companionship, or services of his nieces. We find no precedent for decreeinp; specific perforrl.1ance under such circumstances. In all of the cases called to our attention in which relief was afforded, it appears that the promisees had substantially di.:>charged the obligations which they had severally assumed. In most, if not all, instances they had lived in the promisor's household as members of his family, and had rendered faithful and affectionate services for along period of YE'.ars. It was not possible, therefore, to administer adequate relief, otherwise than by decreeing specific performance. For the res.sons thus indicated, that the bill does not show such a substantial discharge by the during Col. Jacobson's life-time, of the obligations which the agreement contemplated were to be discharged, as will . justify the specific enforcement of the alleged promise, the demurrer was properly sustained, and the decreedismissillp' the bill is affirmed.
F ARMlllns' BANK
(Cwcuit Court, N. D. AZabama., N. D. October 27, 1891.)
BANKING-COLLEOTION 011' DRAFT-OWNER'S RIGHT TO PROOEEDS OEIVER'S HANDS.
A bank which collects a draft seI\t to it by another bank for that purpose, with directions to remit the proceeds to a third bank for the owner's accountl does not therllby become a trustee, so that the fund can be followed into the hanasof a receiver, although it had become mixed with the other cash of the bank before his appointment; especially when it appears that the business was carried on, and money paid out, for several days after the collection was probably made.
In Equity. Bill by the Merchants' & Farmers' Bank against Rich,ard W. Austin, as receiver of the First National Bank of SheffielJ, and others, to recover the proceeds of a draft coUected by the latter bank for the former. Heard on submission for final decree. W. H. Bogle, F. EO'I.Ilhac, and Jo. H. Nathan, complainant. David D. Shelby, for defendants. . BRUCE, J. The complainant bank, of Macon, Miss., became the ,owner of certain bills or drafts drawn at sight by one E. D. Slater on Howell & Co., of Sheffield, Ala. These ,bills were sent by the complainant to the First National Bank of Sheffield at Sheffield, Ala., for collection. There were seven of them, dated from the 7th to the 15th of November, 1889, aggregating in nmount the sum of $17 ;412.25. 'These bills were sent to the First National BankoiSheffie1d about-the
time oftheir dates, with' instructions (except as, to >them) to temit,toChemical National Bank; New York, to the plltinaritbank. The bills were received by the ·Qfl.nk, and it i&;alleged,and claimed.to be shown by tbe:evidence thaUhebills were colleetedi by the defendant bank,which, however; is ,denied in thaanswer. of Ailstin to the bill;· and .the defendant bank drew it!!! drafts for the ,amount. of the bills upon W. Lo Moody & Co., bankers, of New York,Iwhich'drafts were not paid, but were protested for non-payment;. and on"fhe·2oth of November, 1889, complainant bank, through its agent,. demanded payment of the defendant bank, which it:failedand refused.tomake; and on the 29th day of November, 1889, the defendant ,bank suspended,and never resumed. On the 23dday of Decemberfollowing, Richard. W. Austin was, by Hon. E.S. Lacey, comptrollerofthe currency, appointed receiver of', the defendant bank, and took possessionofitsassets, on the 2d day of January, 1890. He states in his· deposition, aodit is not questioned,: when he .took .charge there wass. total of &684.46 on hand, all of which were cssb,itElPls, except SllO.Qo', which was money or actual cash in curren.cy. Resays the' totalamount of assets was-good, doubtful, and worthless-&347,709.98; . liabilities, &235,733.23. The theory of the bill is that the relation of the complainant to the defendant bank was not that of debtor and creditor, nor that, even, of bank and its depositor, but that there was a trust relation subsisting between them} that the complainant bank seqt the bills iu <}uestion to the defendant bank, and employed it as its agent or bailee to collect and tpat the the remit accord,ing to bills, and, in violation of its instructions and duty in the matter, mingled the proceeds with the mass of assets of the bank; and the prayer for a for the of its claim,and interest, of the against ·the Sheffield bank,"making the amount of the claim a first lien on all the assets in the:bll,ndsof the receiver, superior to that of the general creditofsof the bank, and that the receiver be required to pay said claim in preference to ·thegeneral creditors of the bank. Defendant Austin, in liis answer, says: "It lSllottrue that thepr&.ceedsof the sai'd collection passed into the hands of said receiver. It is not true· that the said'recelver now, has, or eve'r had,
tbeproceeds of said collection.?/
The first question to be considered' is one of fact, rather than of law, and is'Whe'ther it is established by the proof that the bills in question were collected by the defendant bank, and that, instead of remitting the proceeds of such collection to the Chemical Bank of New York for credit of complainl;lntbank, thee defendant bank kept the proceeds of the colJection, and turned then:i6ver with the other assets to defendant Austin, ·receiver,and "SO,88 claimed, misappropriated said funds by mingling them with the general' assets of· the bank, and failing'to remit, as instructed, or to provide fur: the payment of the exchange drawn 011 W. L. Moody & ,Co., of NelV York. There is no unqualified statement ·of the witness BeIihamtwhd waS the cashier of the defendant bank at the
time, that t4e biBs were paid to his bank in ,actual IbOney. They wete paid, as he testifies, by the checks of Howell & Co.; but neither he nor thesecheck!lwere actually paid to the deany other witness fendant bank. He testifies that alltbe biliswere paid by the checks of Howell & Co.; that three of the cheeks,aggregating $4,635.12, were on the defendant one ,on the Bank ofOotnmerce of Sheffield for 3720, the otQer three on the First NationaLBank of Florence. He says, in. reply tOrprpss-interrogatory 7: , "It ,JIlay be prppar to state here that at the time Howell & Co. paid the by checks on First National ,Bank of Sheffield, as heretofore stated. his account was oyerdr<lwn from two thousand to six dollars." In antlwer to interrogatory 6, he says: "ldon'tremem1>er telling him [Bogle] there were no'funds on hand to pay the claim; but. as a fact, the bank did not have at anyone time sufficient funds on band' to pay tbis claim." H. C. Howell testifies that he did business under name of Howell & Co,; that the bills were paid by checks of Howell & Co. on the Bank of Florence, except one for $750 on the Bank of Commerce of Sheffield. He says: ."The original drafts are in my possession, but I decline to attach them, as they Ilremy vouQher for these payments." See answer to second direct interrogatory. The pills in question, then, were paid by Howell & Co. 's checks, whether on the banks, as Howell states, or as Benham states, is not clear; nor is it clear that the proceeds of tM collection of the bills were ever actually paid into the defendant bank. Benham does say he collected the drafts, and remitted the same as instructed, and that the "money received was put into the general casb i" but this leaves it in doubt whether the money, or at least a considerable ,portion of it, was ever actually passed into the defendant bank. But conceding that the money collected, and put into the general cash of the defendant bank, then what doe'3 the evidence show as to what became of it? Or, rather, does the evidence show that the money or its proceeds! or the proceeds in the form of any Dew investment, passed into the hands of the receiver, AusUn? There is no evidence in the record tracing any of the complainant's money or its proceeds into the hands of Receiver Austin; and, that baing so, can the compiainant bank, under the rules of law applied to this class of cases, recover as claimed? The general rule is that a cestui can follow trust property, but not when mingled with other property so as to be undistinguishable. 2 Morse, Banks, 590; Case v. Beauregard, 1 Woods, 126. In 2 Pom. Eq. Jur. § 1058, the rule is there stated: "No change in tlle form of the trust property effected by the trustee will impede the rights of the beneficial owner to rei\ch it, and to compel its transfer,provided it can be identified as a distinct fund, and is not so mingled up with other moneys or property that it ,can no longer be specifically separated." "Moneys collected on a draft by an insolvent bank, acting as collecting agept, cannot be collected in full when the ear-marks or means of identity are gone." Wait, Inso1v. Corp. § 659. In a recent case
(Bank v. Goetz, 27 N. E. Rep. 907) the supreme court of Illinois state the rule thus: doctrine is that trust funds can only be pursued when they can be clearly distinguished from the other property held by the trustee, 01' by those representillg bim;" authol'ities. Many caSes and much authority have been cited by the counsel of the respective parties in this case, which it is not deemed necessary to examine at length. But the cases of Bank v. Armstrong, 42 Fed. Rep. 193, and of Bank v. 'Dowd, 38 Fed. Rep, 172, are much in point, and sustain the rule as stated supra. It isclliitned, however, that doctrine and rule on the'subject have been inodifiedby the decisions of the supreme court of the United States in recent cases, and that in cases of this kind the complainantisnot required to trace .the money, property, or proceeds into the hands of the receivel', but only to show that it, in ohe fonn or other, passed with the mass of the assets of the bank into the receiver's hands;a$ ibis phrased in one or more of the cases, that it was put into the bag, and then the court will take it out of the bag, or will hold the whole contents of the bag 8S trust funds, at least until the trustee shall show that what he claims is no part of the particular fund claimed. In the case of Peters v. Bain, 133 U; S. at page 693,10 Sup. Ct. Rep. 361, the court says: "Finally, however, it has been held as the better doctrine that confusion does notdedtroy the equity entirely, but converts it into a charge upon the entire toth,e, party injured by the unlawful conversion a priority of right o.ver the other creditors of the possessor." The case then under consideration by the court was not like the case at bar. ,It was a case where the individual partners in a private bank were also directors in a national bank, and by reason of their position became possessed of a large part of the means of the: national bank, which they' nsed in their own business. They assigned all their property to trustees for the benefit of their creditors. The national bank also suspended, and went into the hands of It receiver. On the face of it, there would be between the trustees in the deed of assignment, whose assignors had become possessed, as the:eourt states, of a large part of the means of the national bank, \vhich they used in their own business, llnd the of the national bank, which had been defrauded by its directors for their own benefit. The s\lit was by the receiver in that case, and his contention was sustained as to property shown to have been purchased with the moneys of the bank; but he claimed also ,property purchased with moneys which were not identi fied as belonging to his bank; and the court says, on page cited supra, in reference to that claim: "The difficulty of sustaining the claim in the prpsent case is that it does not appear that the goods claimed, [by the receiver,] Wat is to say, the stock on hand, finished 'and unfinished,were either in whole or' in part the proceeds of any mOll(jy unlaWfully abstracted from the bank." And on pages 678, 679,133 U. S., and page 357, 10 Sup. Ct. Rep·· in same case, the court say:
MERCHANTS' & FARMERS' BANK
"Some of the money of the bank may have gone into the fund, but it was Dot distinguishable from the rest. The mixture of the money of the bank with the money of the firm did not make the bank the oWner of the whole. All the bank could in any event claim would be the right to draw out of the general mass of money, so long as it remained money, an amount equal to that which had been wrongfully takenfrolllits own possession, and put there. Purchases made and paid for out of the general mass cannot be claimed by bank unless is shown that its own moneys then in theJund were appro.. priated for that purpose." if, tpen, a receiver of a national bank, in a suit in which he is complainant, must trace and show that the money of his ba;nk was used in the purchase of specific property, wlten the suit is against the receiver will a di'fferent rule be applied? Or will not the complainant be required, as in the case cited, to show not only that the money went into the complainant bank, but that it iF! still there, or, if used in the chase of property, that ,the new investment is in the hands of the receiver? So that this case is really against the contention of complainant in the case at bar. Other cases are cited and relied on to support what is claimed to be the new or modified rule. In one of these cases (McLeod v. Evans,66 Wifl.401, 28 N. W. Rep. 173,214) the rule is there stated. We do not understand that it is necessary to trace the trust fund into some specific property in order to enforce the trust. If it can be traceCl. into the estate of the defaulting agent or trustee, this is sufficient. The complainant insists that the case at bar falls within this rule, and the line of authorities cited in support of it; that is, that it is shown, th!J,t the complainant's money was paid into the bank, which .and was mingled with the general assets now in the hands of a receiver; and therefore, without showing more, he is entitled to the right of a preferred creditor of the· bank. It. is claimed that,this r4le is supported by the supreme court of t'hlt l;Tnited in National Bank v. InffUrance 00.,104 U. S. 54, when the court saYl!: , "There is no difference between investments in the purchase of lands or chattels or loans or money deposited in bank; * * *. for equity will 'tol';' low the money even. if put into a bag, or an undistinguishable mass, by taking out the same quantity." The facts in the case, however, show it very unli,ke the case at bar. n is. the statement of a general principle of equity, which has little, if aQY, application to this .case. There :'re no doubt cases where a court of equity will follow money even if put in a bag, and take out the same as was wrongfully put in, but the rule in the case of McLeod v. Evans, cited Sltpra, goes beyond this, and must do so to sustain the case at bar. There the proposition is not simply to take out money, as in National Bank v. Insurance Co., but that it is not necessary to trace the fund into. specific but only into the estate of the defaulting agent or trustee, which it is insisted has been done in this case. The ground on which this rule seems to be based is that the fund which has goes to illcrease the corpus of the trust-estate, and swell the' assets, and that to take the same quantity out qf the general assets
ODER.A.L REPoRTERj vol. 48.
leaverilrthat the general el'ltit1'E!d to, and iujijrethepi." 1n,t4e ,case 'of '8, trust-estllte in. th:e or which nothing gohig,out,anu wqiQIHllithiQg W8.$ and no opportunity for loss, and to which by misapplication of the agent (i)r trustee; been added, it· ma:y be assumed that· in I snch a case the rule claimed might well be a:pplied;' But that is not case,or a questioosuch as we have under consideration here. When the bills in question were collected by the defendimtbl1nk, which was doubtless insolvent ,at and before that time, its dooi's'were not then closed, but the business was carried on up to tbe 29th; and we have a statement olthe witness Benham, cashier, as to the businessofthe bank each 'day from the 21sttothe29th November, when the doors were closed; and, in answer to cross-interrogatory 6, among otherthiogs he says: ,' '''I plild61ltsmall checks 'until the'bank closed; for, if I had refused their payment,there would have been a run on the bank at once, and my cash would hav.ebeen diminishedaccotdingly.". In the light of this and other te8timony, it scarcely admits of doubt that the collections made by the defendant bank on complainant's bills, whatever they may have beehas to amount, between the date of the collections and the' 29th, the suspension took place, were paid out on the sml\.ll checks he speaks'of. It may be said the bank got the benefit of these payments of checks, because that was the cancellation of just so much 'indebtedness; but is i,t shown that the payments were not made on overdrafts by insolvents" Rnd how is it shown that the accounts on which checks were drawn and paid were not the, proceeds of discounts of insolvent paper, or something of that kind? This bank failed and suspended. There must have been a cause for it. On the letter-heads the capital stock is stated to be $100,000; paid-up and undivided profits, 820,000. In answer to cross-interrogatory 5, Benham, cashier, says: "It is true that over $50.000 was in vested in bank building. furniture. and is trlle,that one Woodllon owed the bank between and $50,lots. OOO,-overdrafts, about $23,000; notes, about $15.000. tt And inlihswer to direct interrogatory B,after giving an account of the, business of the bank from November 21st to November 29th, when the bank closed,he says: "Balance to start with. [that Is, on the 29th.] $8,023.19; credits in book. $73;'584.30; dlsbursemt'nts or debits. as above, by cash-book, was $81,203.58; leaving a balance of $403.91." Then follows an explanation as to hoW the books were kept, too long for insertion here, and he concludes his, answer by saying: "The Iarge'amount of dIsbursements and'receipts on November 29, 1889, arises fromthEflarge amount of offset entries, in which Charles D. Woodson overdrew his ipersonal account, and had a greater portion of the amount placed to'the creditot: other accounts." , The witness does say, in answer to fourth interrogatory: "I don't know, 'that the bank suffered any losses after these papers werfiSent by complaina:nt to the bank." .
4 FARMERS' BANK ". AUSTIlf.
And there i$ no direct .proof of the losses of the bapk, or when they occurred. ' even in proof that the estate of Charles D. Woodson, the prelliden,tA>f bank, was and is insolvent, though it is in proof tna,t his to the bank .and his overdrafts to the amount of about $50,000 are ,unpaid, and are now in the hands of the receiver, Austin. Benham says: "I did not knowit [the bank] was insolvent at the time, because I was not aware offacts which have since come to my knowledge." It is, nO .doubt, difficult, in cases of this kind, to determine the time at which a bank becomes actually insolvent beyond the just hope of recovery; but the evidence here iiJ not alone the allegation of hopeinsolvency in the bill, and not denied, but. other evidence the recorfl sho;wsihat at and prior to the tip:}e the bills were received by the defenqant .bank for co,llection its affairs were in a critical condimay be said as to the otheroflicers and directors tion, and that, of the bank, at least the president, Woodson, knew itsactl)al condition insolvency. Not Qnly so, but, on the very,day to be that Woodson overdrew his. personal MCllont, and credited accounts. See testijp,<>Uy of :QenbaIP, dted BUpra:. Whatever this 'and other testimony may mean,-for some of it is neither full nor definite;in statement,""'""rit.is clear that Woodson 'not only knew, 'bQt in violation of his trust, for his own benefit, contributed to the and .suspeIlSion of this bllJlk. This is not. a case for the application of the rule invoked here by the 9OIIlplainant., To recur to the illustration .of the trullt-estate being ,in the bag, and that a will put its hand into the bag, and take out the same quantity as that which, by a misapplication, the trustee put in. This bag is not shown to have been 'closed and inviolate, but it appears that the money was going out as fast as it was put in, and the collection of complainant's bills did not in fact increase the general assets of the. bank, but, rather, that they were part and parcel of tile funds lost in the wreck of the bank. In the case of Railroad 00. v. Johnston, 133 U. S. 577, 10 Sup. Ct. Rep. 393, the court says, quoting with approval: ..A banker who is, to his own knOWledge, hopelessly insolvent, cannot honestly continue his business, and receive the money of his customers, and, although having no actual iutent to cheat and defraud a particular customer, be will beheld to have intended the inevitable consequences of his oWn act to cheat and defraud aU persons whose money he receives, and whom he. fails to pay, before he is compelled to stop business." '. In, the light of this authority, the officer responsible for contiD11ing the business of this bank after hopeless insolvency had supervened, which must have been known at least to the president of ihe bank, was committing a fraud in receiving', tbifinoney of innocent depositors and ·oth· ersignorant onts true condltion; The complainant bank was the victim of this fraud, as well as others, who had all been ttlike niisledand deceived by the apparent solvency and good credit of the bank. But, legal: or moral point of.yiew, wag the fraud any 'deeper ormoreRaupon the other creditors of thebank'r
It, is: insisted that the relation of the complainant and defendant bank was that- of principal and agent; that the complainant bank, by its instructionsto'collect and remit, never by any implication, to st8.n.d on any other than a strictly fiduciary relation; and that such relation is a different one, and one of higher trust, so to speak, than the relation of a depositor or other debtor of the bank. We have seen that the authorities do not sustain this distinction as a ground for a preferepce in the distribution of the general assets of a broken bank; and, upon prin-ciple, can such a preference be:mliihtained? It is'common, business for banks to employ eac'n other as collection agericies; and they perform this duty in no exceptio'h8.J. way, but itithe same manner in which they do the general busineesof the bank. A bill is collected by 8 bank, and the proceeds mingled with the general assets, so as to be entirely undistinguishable, and with no ear-marks Or means by which it can be identified or traced into any new investment. The bank breaks. Now, on what prinoiple does hestand on other, or higher ground than he who l with faith in the solvenoy of the bank,deposits his money and loses it? The contention here is not supported either by sound reason or authority. Another question is made and in the.case. It is that section 0236 of the Revised Statutes of the United States, in chapter ,4, in reference to the dissolution and receivership of national banks, stands in the way,of complainant's contention here. If, however, the views e:J!:pressed are correct, they are decisive of the cnse, and this question need not be The bill is dismissed, with costs.
NEW YORK t1. MARmTTA.& N. G. Ry. Co·· (IIu.WASSA
Court,· N. D., GeO'l'flfa. July 6, 1891.)
BBOlCIVll:R OJ' ,RAILROAD COliPANT-P.t1BO',IIA8.
o:r ROLLING STOOL Where the property of a railroad company is placed in the hands of a receiver, and rolling lltock is found on ,the raUroll.d, plll.ced there1>;V another corporation, the : principal'stockholders in which are also controlling- stockholders in the railroad company, and the rolling stock is olaimed by the corporation placing the lame on the road, and no contract of sale is shown, held, that the receiver should be authorized to purchase the same and pay the value of the rolling stook when the property went into the receiver's hands.
Bu&r, Still/rnan Hubbard and .H. B. TompkinB, for complainants. Burton Smitll., for intervener.
NEWMAN.' 'J. When the Marietta. & North Georgia Railway was placed in the hands ofa receiv'erbyorder of this court there w8S'ontbe
Bill to foreclose a railroad mortgage.
l.Reversed in oirouit court of appeala, 48 Fed. .Rep.