Western German Bank v. Norvell

SHERBY, Circuit Judge, after making the foregoing statement of the case, delivered the opinion of the court. [726] 1. It is alleged in the bill that the defendant bank was insolvent whén it received the draft for collection, and when it collected it, and when it remitted the New York exchange. The New York exchange is dated March 13, 1903, and on the next day the defendant bank and its assets were in the hands of a receiver appointed by the Comptroller. Its insolvent condition was known to the officers of the bank, and they wrongfully neglected to disclose the fact to the complainant. On the-facts averred in the bill, it was a fraud on the part of the defendant bank for it to receive the draft for collection, intending to collect it and to mingle the proceeds of the collection with its general assets. The draft, therefore, and the proceeds of its collection, remained the property of the complainant bank. Richardson v. New Orleans Deb. Red. Co., 102 Fed. 780, 42 C. C. A. 619, 52 L. R. A. 67. The fact that the complainant gave directions to the defendant to remit the proceeds of the collection in New York exchange does not alter the case. These directions were given, because the complainant bank was led to believe that the defendant bank was solvent, and was doing business honestly and in good faith. It was not supposed that the defendant bank, when its officers knew it to be insolvent, would receive drafts for collection, collect them, and mingle the proceeds with its general assets, so as to knowingly subject the owners of the drafts to loss. It appears from the bill that, with knowledge of its' insolvency, it received and collected this draft, mingled the proceeds of its collection with its other funds, and followed the complainant’s direction as to remitting in New York exchange; but the defendant bank was placed in the hands of a receiver before the complainant received the exchange, and the exchange was protested. As the exchange was not paid to the complainant, and did not diminish the funds in thé bank, or create any liability against it affecting the general creditors, it does not have any effect upon the equitable rights of the complainant. Richardson v. New Orleans Coffee Company, 102 Fed. 785, 43 C. C. A. 583. 2. The fact that the proceeds of the draft, when collected, were mingled with the other funds in the bank, does not defeat the complainant’s right of recovery. When a bank receives money, it being known to its officers to be insolvent, and mingles the money with its own funds, which, to an amount larger than the sum so received from its client, goes into the hands of its receiver, it is not essential to the right of its client to recover from the receiver that he should be able to trace the identical money into the receiver’s hands; but it is sufficient to show that the sum which went into the receiver’s hands was increased by the amount which the bank received of its client. Richardson v. New Orleans Deb. Red. Co., 102 Fed. 780, 42 C. C. A. 619, 52 L. R. A. 67, and cases there cited. 3. In support of the third ground of demurrer, it is argued that the bill does not allege that the defendant bank was “hopelessly” insolvent. It is true that the bill does not aver in plain words the hopeless insolvency of the defendant bank. It is alleged, however, that it was insolvent, and that its insolvency was known to its officers, and that they wrongfully neglected to disclose its insolvency to the complainant, and that it .received the draft for collection, collected it, and, while so insolvent, sent the New York exchange, which was dated March 13, [727] 1903, and that on March 14, 1903, the defendant bank was placed in the hands of a receiver. These averments of the insolvency of the bank, we think, are sufficient. See St. Louis, etc., Ry. Co. v. Johnston, 133 U. S. 566, 10 Sup. Ct. 390, 33 L. Ed. 683, reversing the decree of the Circuit Court, 27 Fed. 243. The decree of the Circuit Court, dismissing the bill, is reversed, and the case remanded, with instructions to overrule the demurrer.