Clark Sparks & Sons Mule & Horse Co. v. Americus Nat. Bank

LAMBDIN, District Judge (after stating the facts as above). The question here presented is whether the complainant, who forwarded the draft in question for $6,272.50 for collection to the Americus National Bank, which collected same in the manner stated above, but failed to remit the proceeds before its failure, is entitled to priority of payment over the general creditors of that bank. [1] 1. The assistant cashier, Wheatley, who handled the draft in question, was fully aware of the insolvency of the Americus bank when he made the collection, and the court is of the opinion that this knowledge should be imputed to the bank itself. At any rate, it was the duty of the directors of the bank to know of its insolvency, and it is presumed that they had knowledge of same. Lowry Banking Co. v. Empire Co., 91 Ga. 624, 17 S. E. 968; State v. Quackenbush, 98 Minn. 515, 108 N. W. 953; Martin v. Webb, 110 U. S. 7, 3 Sup. Ct. 428, 28 L. Ed. 49; Manhattan Bank v. Walker, 130 U. S. 627, 9 Sup. Ct. 519, 32 L. Ed. 959; Tate v. Bates, 118 N. C. 287, 24 S. E. 482, 54 Am. St. Rep. 719. [2] (a) The bank being .thus hopelessly insolvent at the time that it received and collected the draft, and the officers of the bank having knowledge of this insolvency, or being presumed to have knowledge of such insolvency, the Americus bank, on account of this fraud, did not acquire title to the draft, or to the proceeds of the collection of same. Wasson v. Hawkins (C. C.) 59 Fed. 233; Richardson v. Olivier, 105 Fed. 277, 40 C. C. A. 468, 53 L. R. A. 113; 5 Cyc. 493, and cases cited in notes. [3] (b) Furthermore, from the facts above stated, and from other facts shown by the evidence, including the fact that this Hanesley draft was sent to the Americus bank solely for collection and remittance of proceeds, the court iá of the opinion that on this ground also the title to this draft and its proceeds never left the complainant, as the Americus bank was a mere agent for the collection of the draft. 5 Cyc. 493, and cases cited in notes; Fifth Nat. Bank v. Armstrong (C. C.) 40 Fed. 46. [4-6] 2. For both these reasons complainant is entitled to recover the proceeds of this draft from the receiver of the Americus bank, [741] provided it is able to trace and identify the proceeds derived from the collection of same. This brings the court to the consideration of the next question in the case, which is whether the complainant has been able to trace and identify the proceeds of the collection of this draft. It appears that the draft was paid by a check drawn by Mr. Hanesley on his deposit with the Americus National Bank for $6,272.50 and exchange, and that by previous arrangement with the Americus bank, Mr. Hanesley paid $6,000 of this amount with his two notes, which were dated January 9, 1914, the day the draft was paid, and which fell due October following. The court is of the opinion that, since these two notes were used by agreement for the payment of this draft to the amount of $6,000, they can be considered as a part of the proceeds of the collection of this' draft, and a substitution for same. The amount of the draft above $6,000 was paid by a mere shifting of credits in the Americus bank, and did not add to or increase its assets, and consequently the court is of the opinion, under the ruling in the case of Anheuscr Busch Brewing Association v. Clayton, 56 Fed. 759, 6 C. C. A. 108 (C. C. A. 5th Cir.), that complainant cannot recover the excess over $6,000, which was the cash value at the time, of the notes Mr. Hanesley gave the bank, so as to pay the draft in question. These notes, as stated above, along with other notes, amounting to $24,562.60, were taken by the cashier of the Americus National Bank to New York and hypothecated with the. National Park Bank as security for a loan of $20,000, which was then made by the National Park Bank to the Americus bank, and nearly all of this loan, by'the sale of New York exchange, was transferred from the New York bank to the Americus bank. The Planesley notes, which were good, were transformed into a part of this loan, and thus became a part of the funds so transferred to the vault of' the Americus bank. At no time between the payment of the draft in question, or the making of said loan in New York, and the date when the Americus bank closed its doors, was the cash on hand in said bank less than $7,000. The court is therefore of the opinion that the proceeds from the collection of said Hanesley draft to the amount of $6,000, which was represented by the Hanesley notes so deposited with the New York bank, increased the assets of the Americus National Bank to the extent of said sum of $6,000, and that this sum has been traced and identified in the residuum of over $7,000 which was turned over to the receiver when the Americus bank closed its doors. Since the modern doctrine of equity in such matters was enunciated in the leading English case of Knatclibull v. Hallett (In re Hallett’s Estate) 13 Ch. Div. 696, which has been quoted approvingly many times by the Supreme Court of the United States, it is no longer necessary to trace the identical money by any earmarks which it may have; but, if the money in question can be traced into a general mass of money, equity will follow the money by taking out the same quantity. National Bank v. Connecticut Mutual Life Ins. Co., 104 U. S. 54, 26 L. Ed. 693. [742] Where money belonging to a cestui que trust is traced into a general mass in the hands of a trustee, and the trustee makes payments out of this mass, it is always presumed that he makes such payments out of his own funds, and not out of the money of the cestui que trust, which has gone into this mass, and the cestui que trust is -therefore entitled to trace his money into the residuum. Boone County Nat. Bank v. Latimer (C. C.) 67 Fed. 27; 39 Cyc. 539 and 540, and cases cited in notes; Piano Manufacturing Co. v. Auld, 14 S. D. 512, 86 N. W. 21, 86 Am. St. Rep. 769; In re Berry, 147 Fed. 208, 77 C. C. A. 434. The court is therefore of the opinion that, under the facts in this case, the complainant is entitled to a decree against the receiver for the sum of $6,000, represented by the cash value of the Hanesley notes at the time they were given. Commercial Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363; Western German Bank v. Norvell, 134 Fed. 724, 69 C. C. A. 330; Butler v. Western German Bank, 159 Fed. 116, 86 C. C. A. 306; Richardson v. New Orleans, etc., Co., 102 Fed. 780, 42 C. C. A. 619, 52 L. R. A. 67; Richardson v. New Orleans Coffee Co., 102 Fed. 785, 43 C. C. A. 583; Richardson v. Continental Nat. Bank, 94 Fed. 450, 36 C. C. A. 315; Goshorn v. Murray (D. C.) 197 Fed. 409; E. B. Macy v. Roedenbeck (C. C. A. 8th Cir.) 36 Am. Bankr. Rep. 31, 227 Fed. 346, - C. C. A. -, and cases cited in same; St. Louis Ry. v. Johnston, 133 U. S. 566, 10 Sup. Ct. 390, 33 L. Ed. 683. (a) However, under the ruling in the case of Richardson v. Louisville Banking Co., 94 Fed. 442, 36 C. C. A. 307, complainant is not entitled to any interest. [7] 3. A suggestion is made that there are possibly other persons who claim priority, in the same fund that was turned over by the bank to the receiver when it closed its doors. The receiver in this case will be allowed 30 days in which to call the.attention of the court to any other claim, which is entitled to such priority. A decree may therefore be entered in this case finding in favor of the complainant against the. defendants, the Americus National Bank and its receiver, for the said sum of $6,000 as a preferred claim entitled to priority in payment out of the funds in the hands of the receiver in said cause ahead of the general creditors, and the complainant is also entitled to a decree for the remainder of its claim amounting to $272.-50, but without priority, to rank along with the claims of the other unsecured creditors of the bank, giving the privilege, however, to the receiver, at any time within 30 days from this date, to call the attention of the court to any other claims which may be entitled to priority of payment, so that the court may take such further action in the matter as may be equitable and proper, in view of such other claims.