First National Bank v. Dennis, 20 N.M. 96

20 N.M. 96 | N.M. | 1915

OPINION OF THE COURT.

HANNA, J.

(after stating the facts as above) — The essential question here presented for consideration is whether the complaint presents a state of facts entitling the plaintiff, appellant here, to priority in the allowance of its claim; the issue being raised by defendant’s demurrer to- the complaint.

[1] The question is peculiarly one of fact rather than law, and is calculated to create a natural divergence of opinion in its solution. The authorities have widely differed in the rules laid down as determinative of the question, but it is unquestioned, we- believe, that the general rule is that a bank to which paper is intrusted for collection, in the absence of an agreement to the contrary, becomes the owner of the money collected, and, when collected and proper credit is given to the holder or owner, the relation of debtor and creditor is created between the parties. Michie on Banks and Banking, § 166; 3 R. C. L. § 262.

This has been said to arise by reason of the well-known custom of banks to commingle proceeds.of collection with their own funds, which it is to be assumed all who deal with banks have full knowledge of and give assent to by their very dealing.

[2] We do not understand that either party questions the general rule, as stated, but the appelle contends that the only exception to this rule which would create a trust relation between the parties arises in the case of the insolvency of the collecting bank, known to the officers of the institution, a condition not presented by the complaint in this case.

The condition of insolvency in a collecting bank, known to its officers, impresses the proceeds of the collection with a trust in favor of the owner, or holder, of the paper. Michie on Banks and Banking, § 166; St. Louis & S. F. Co. v. Johnston, 133. U. S. 566, 10 Sup. Ct. 390, 33 L. Ed. 683.

[3] We cannot, however, agree that this constitutes the sole exception to the general rule first stated.

It is to be noted that the general rule was stated with the qualification “in the absence of an agreement to the contrary.” We find the conclusion irresistible that the best statement of the qualification of the general rule is that where a special agency is created, and the collecting bank has no authority to hold and credit proceeds of paper, but is bound by the agreement to remit them immediately to its correspondent (or owner or holder), the relation of trustee and beneficiary is created, and the money collected, or its equivalent, can be recovered from the assignee of the insolvent bank, if the fund is traceable. Morse on Banks and Banking, § 166; Michie -on Banks and Banking, § 166; Jones on Insolvent Corporations, 141.

It is thus to be seen that the exception to the rule is not based solely upon the element of insolvency known to the officers, and therefore amounting to a fraud upon the unsuspecting customer, but arises out of the agreement, or limited agency in the collecting bank, violation of which likewise amounts to a fraud upon the rights of the customer. We are therefore of the opinion that the exception to the general principle is not dependent altogether upon the existence of insolvency in the collecting bank, but may arise out of a violation of the agreement, or failure to comply with the terms upon which the item for collection is left with the collecting bank. This exception to the rule as last set out, in this opinion, finds support in the following authorities: American Can Co. v. Williams, 178 Fed. 420, 101 C. C. A. 634; Wallace v. Stone, 107 Mich. 190, 65 N. W. 113; Hunt v. Townsend, et al. (Tex. Civ. App.) 26 S. W. 310; Thompson v. Gloucester City Sav. Inst. (N. J.) 8 Atl. 97; Insurance Co. v. Kimble, 66 Mo. App. 370; National Life Ins. Co. v. Mather, Rec., et al., 118 Ill. App. 491; Plano Mfg. Co. v. Auld, 14 S. D. 512, 86 N. W. 21, 86 Am. St. Rep. 769; Hutchinson et al. v. National Bank, etc., 145 Ala. 196, 41 South. 143; Hall v. Beymer, 22 Colo. App. 271. 125 Pac. 561.

[4] It is our opinion that the true test of the existence or nonexistence of a trust in the proceeds of collections made by an insolvent bank is whether or not the relation of debtor and creditor exists between the insolvent bank and the one seeking to establish the trust, and, if it exists, there is no trust. See cases collected in note to American National Bank v. Pedley, Rec., etc., 38 L. R. A. (N. S.) 146.

In the case under consideration, it is admitted by the demurrer that the instructions accompanying the draft were that the item was to be collected and proceeds- returned to the transmitter, and that there had been no previous course of business or dealings of any kind between the parties; the collection in question being the first business transacted between the parties. These fa|cts, we believe, clearly establish that the relation was not one of debtor and creditor, but that of principal and agent, and the breach of the terms of the agreement, which arose upon the acceptance of thé conditions of the collection, constituted a fraud entitling the forwarding bank to a preference in the assets of the receiving- or collecting bank now insolvent.

Ordinarily,' there would remain the further question, possibly, as to whether the trust fund can be traced into the hands of the receiver or assignee; but it is conceded by appellee that the allegations of the complaint in reference to the tracing of the funds into the hands of the receiver are sufficient, and we are therefore not called unon to pass upon this question.

■ For the reasons stated, the judgment of the lower court is reversed, and the cause remanded, with instructions to overrule the demurrer and proceed with the cause in accordance with this opinion.

Boberts, C. J., and Parker, J., concur.