Court Opinion

ID: 8023923
Source: CourtListenerOpinion
Date Created: 2022-09-09 02:28:53.092179+00
Date Added: 2024-06-11T16:36:45.909063
License: Public Domain

MR. CHIEF JUSTICE CALLAWAY
delivered the opinion of the court.
The plaintiff, through the Bank of California, forwarded for collection to the Havre National Bank, hereafter called the Havre Bank, a draft upon the Ryan Havre Company of Havre, Montana, in the sum of $4,671.28, with instructions to remit the proceeds to the First National Bank of Chicago, hereafter called the Chicago Bank. Five days later and on-August 29, 1921, the Ryan Havre Company paid the draft by a check drawn on the Havre Bank with which it then had sufficient credit to cover the amount' of the chock. On *145the same day, August 29, for the purpose of paying the amount due the plaintiff the Havre Bank sent its cashier's check in the sum of $4,572.88 (being the amount due on the draft after allowing the authorized deductions) to the Chicago Bank. The Chicago Bank immediately sent the cashier’s check to the Federal Reserve Bank of Minneapolis, Helena Branch, Helena, Montana, hereafter called the Helena Bank. The Helena Bank forwarded the check to the Havre Bank and it reached that bank on September 7, 1921. For the purpose of paying the check and some other cash items the Havre Bank drew a draft upon and in favor of the Helena Bank in the sum of $6,565.36; but on the same day, September 7, after banking hours, it was decided officially that the Havre Bank should be closed on account of its insolvency and it did not open for business on the morning of September 8, and has been closed ever since. On September 7 the national bank examiner in charge of the Havre Bank notified the Helena Bank by telegram of the closing of the Havre Bank. At that time the account of the Havre Bank with the Helena Bank was overdrawn to the extent of approximately $12,000. The Helena Bank, having been authorized to file with the defendant receiver plaintiff’s claim for the sum of $4,572.88, included that amount with other claims it then had, and on February 20, 1922, filed with the receiver a claim amounting to $9,000, and over, for which on March 5, 1922, the receiver issued to the Helena Bank his certificate, which is still outstanding, in full force and has not been canceled.
On December 12, 1921, the plaintiff presented its duly verified claim to the receiver for the sum of $4,571.88. This the receiver disallowed, and he has ever since refused to allow it.
■Nothing by way of funds or cash came into the possession of the Havre Bank or its receiver on account of the draft upon the Ryan Havre Company. The collection was handled in the usual course of business and by a transfer of credits merely on the books of the Havre Bank. The total amount of *146cash on hand in the Havre Bank at the time it closed its doors and when defendant was appointed receiver was $1,801.62.
Plaintiff having begun suit against the defendant as receiver, upon an agreed statement of facts containing substantially what is above set forth the trial court rendered judgment in favor of plaintiff for the sum of $4,572.88, declared the same to be a preferred claim against the bank, directed the receiver to issue a certificate based upon the- preferred claim to the full amount thereof and ordered him to pay the same in due course of administration of his trust. From this judgment the defendant has appealed.
When the Havre Bank obtained the amount of the draft  which it was directed to collect and remit, the relation of agent and principal, and not that of debtor and creditor, existed between it and the plaintiff. (Guignon v. First Nat. Bank, 22 Mont. 140, 55 Pac. 1051, 1097; Spokane & Eastern Trust Co. v. United States Steel Products Co. (C. C. A.), 290 Fed. 884; Michie on Banks and Banking, 1426, 1427.) As in the Guignon Case, the Havre Bank could only receive cash in payment of the draft, and it could only discharge its duty by remitting the cash collected to the Chicago Bank. Under the circumstances the collection and retention of the money by the Havre Bank created the relation of trustee and beneficiary between that bank and the plaintiff. (State ex rel. Kelly v. Farmers’ State Bank, 54 Mont. 515, 172 Pac. 130; 7 C. J. 617.) If the collection of the draft augmented the assets of the bank, and if the plaintiff can trace the proceeds of the collection into the hands of the receiver, the plaintiff has a preferential right to these proceeds. As to this respective counsel agi’ee. Defendant’s counsel contends that by the collection  of the draft in the manner in which it was done the assets of the bank were not augmented; he says there was a mere shifting of credits -upon the bank’s books. The stipulation is that the Ryan Havre Company had sufficient credit with the Havre Bank to meet the payment of the check. This means, if it means anything, that the drawer had on deposit *147with the bank sufficient funds to pay the amount of the check, and it must also mean that the bank was in funds to an amount sufficient to honor the cheek. Instead of transmitting the money the bank sent on its cashier’s check. The person who drew it, if the bank had not sufficient funds then on hand to cover it, and' he knew that fact, made himself subject to prosecution under the provisions of section 11369, Revised Codes of 1921. The court will indulge the presumption that the person who drew the check did not break the law. The presumption is the other way. (Sec. 10606, subd. 1, Rev. Codes 1921.)
Many authorities support the view that where a collection is made by a bank which charges the amount collécted to the account of the debtor who is a depositor in the bank, the assets of the bank are not augmented thereby; the theory being that this merely amounts to a shifting of the bank’s liability. But the theory of these cases proceeds upon the hypothesis that the relation of debtor and creditor exists between the bank and the person for whom the collection is made. As we have seen, that relation did not exist between the Havre Bank and the plaintiff. Still referring to the foregoing theory, inapplicable in this case, it is admitted that the company could have presented the check at the paying teller’s window, received the amount in cash, then have paid it to the receiving teller, and this would have been an augmentation of the bank’s assets. No such idle ceremony is called for. It would seem that futility could not go much further. When the bank was in duty bound to collect the cash and to remit, but instead retained the cash, when remitting would have, decreased its assets, it follows that by retaining the cash its assets were augmented.
As it was the duty of the bank to collect the cash upon the draft, and as the bank had the cash with which to pay it, as a matter of law it must follow that the bank did set aside out of its cash then on hand a sum of money sufficient to pay the draft, and that sum of money is held as trustee of the *148plaintiff. This conclusion we think is consistent with sound reason. (State Nat. Bank v. First Nat. Bank, 124 Ark. 531, 187 S. W. 673; Goodyear Tire & Rubber Co. v. Hanover Nat. Bank, 109 Kan. 772, 21 A. L. R. 677, 204 Pac. 992.)
With respect to tracing the fund, the law is that where a  trustee mingles his beneficiary’s money with his own and then invades the common store he will be presumed to have used his own money first, because the law presumes that a man does right rather than wrong. The sum remaining in the hands of the trustee will be deemed the money of the beneficiary as far as necessary to make up, if possible, the full amount due him. The rule is well stated in L. R. A. 1916C (note) at page 86 as follows: “Ever since the decision in Knatchbull v. Hallett (1879), L. R. 13 Ch. Div. (Eng.) 696, 49 L. J. Ch. (n. s.) 415, 42 L. T. N. (n. s.) 421, 28 Week. Rep. 732, it has been the established rule in oases where a trustee has mingled with his own funds money held in trust, and then dipped into the common store and taken out and used a part, that, so long as a balance equal to the trust fund remains, if will be presumed that the money drawn out and used was the trustee’s own money, and that the money left undrawn was the trust money. In cases where it has appeared that the balance left in the mingled store was less than the sum of money held in trust, the courts generally have presumed that the drawings out by the trustee began upon his own funds, and continued until they were exhausted, before he intrenched upon the trust money, and therefore, that whatever balance remained belonged wholly to the trust.”
In his well-written brief counsel for defendant says, cor- rectly, that conceding the foregoing statement to be true the preference may not extend above the amount of the lowest balance on hand in the collecting bank between the time of making the collection and its enforced closing; this on the theory that if the amount of cash in the bank at one time during the interval has reached a low figure and later a higher one, it is conclusive that some of the trust funds have *149been dissipated and funds deposited by others have come into the bank’s possession, upon Which the beneficiary may have no preference. (Covey v. Cannon, 104 Ark. 550, 149 S. W. 514.) So far as we are apprised by the record, the sum of $1,801.62 was the lowest amount of cash in the bank at any time after the collection was made. If the contrary is true the facts were in the receiver’s possession; but he did not disclose them.
Rehearing denied December 17, 1923.
In one respect the court erred. It should have given plaintiff a preferential right to the $1,801.62 only. As to the remainder of its claim it is a general creditor.
The cause is remanded to the district court, with directions to modify its judgment accordingly; each party to pay its or his own costs on this appeal.

Modified.

Associate Justices Cooper, Holloway, Galen and Stark concur.