Case: THE EQUITABLE TRUST COMPANY OF NEW YORK, TRUSTEE IN BANKRUPTCY OF KNAUTH, NACHOD & KUHNE, v. THE FIRST NATIONAL BANK OF TRINIDAD, COLORADO
Abbreviation: Equitable Trust Co. v. First National Bank of Trinidad
Decision Date: 1928-01-03
Docket Number: No. 130
Citation: 275 U.S. 359
Volume: 275
Reporter: United States Reports
Court: Supreme Court of the United States
Jurisdiction: United States
Parties: THE EQUITABLE TRUST COMPANY OF NEW YORK, TRUSTEE IN BANKRUPTCY OF KNAUTH, NACHOD & KUHNE, v. THE FIRST NATIONAL BANK OF TRINIDAD, COLORADO.
Judges: Mr. Justice McReynolds joins in this dissent.
Pages: 359–372

Head Matter:
THE EQUITABLE TRUST COMPANY OF NEW YORK, TRUSTEE IN BANKRUPTCY OF KNAUTH, NACHOD & KUHNE, v. THE FIRST NATIONAL BANK OF TRINIDAD, COLORADO.
No. 130.
Argued December 7, 1927.
Decided January 3, 1928.
Mr. Godfrey Goldmark, with whom Mr. Ralph F. Colin was on the brief, for petitioner.
Mr. George Trosk, with whom Messrs. William DeForest Manice and Allen B. Memhard were on the brief, for respondent.
Mr. Harold Nathan filed a brief as amicus curiae by special leave of Court oh behalf of Fidelity Trust Company of New York.

Opinion:
Mr. Justice Holmes
delivered the'opinion of the Court.
Knauth, Nachod and Kuhne being in bankruptcy, the respondent, The" First National Bank of Trinidad, Colorado, claimed, priority in respect of certain funds collected by the trustee in bankruptcy, the petitioner, from the Banca Commerciale Italiana; the ground of the claim being that these funds were charged with a trust in the hands of the Italian bank. The respondent prevailed in' the Circuit Court of Appeals. 13, F. (2d) 732. A writ of certiorari was granted by this Court. 273. U. S. 684.
The facts are as follows. The bankrupts had credit' with many foreign banks and to enable small banks in this, country to issue drafts upon such banks in their own name offered these terms:' " Upon receipt of advice of draft, ac-companied by adequate funds payable at par in New York, we shall promptly forward our advice of the same and provide the drawee with funds sufficient for the payment of the draft abroad, by a transfer of .credit from our' balance, or otherwise, provided the draft is drawn on a bank named in our latest list of correspondents." It was added that the. drawing banks act as principals .and draw in their own name, the bankrupts being employed merely " as agents of the drawers for the purpose of advising the issue of their drafts and providing the drawee banks with sufficient funds to cover their payment." The bankrupts sent out lists of their foreign correspondents and also daily rate cards fixing the rate for the various foreign currencies, including their own compensation, good only for the day of the date. In accordance with this plan the Trinidad bank drew a draft on a branch of the Banca Commerciale Italiana for 24360 lire, sent notice to the' bankrupts that they had sold it "and'shall thank you to protect same •upon presentation," and remitted therewith a check for $1,191.20, which the bankrupts received on May 22, 1923, and deposited to their general account. On the same day the bankrupts sent to the Italian bank and to its branch a list and description of the drafts issued by,inland banks and by the bankrupts and requested it to "honor the, above listed drafts charging same to our account.'' The list was received on or before June 4, 1923; .the account of the bankrupts was debited with .the total amount and .to that extent ceased to draw: interest, the'- bank getting its compensation in this way. At the_same time an account termed "Drafts Payable." was credited with the same amount, this account.being credited; in the same way with drafts from other dealers with the bank and the bankrupts themselves. In-accordance with- the practice in international banking, the bankrupts when they saw fit to do so cancelled their advices and were recredited in their general account; and although in fact they did not cancel the advice of inland drafts except when requested by the inland banks, the Italian bank did not know or inquire into reasons and so far as appears the Trinidad bank, or at all events the holder of the draft, knew nothing of the mode of bookkeeping described.
The draft was presented after the petition in bankruptcy had been filed and was dishonored; the petitioner as "drawer had to take it up and now claims on the two grounds that the sum paid by it was paid upon trust to be applied to the draft, arid "that as .holder of the draft it is, by subrogation, an equitable assignee of the bankrupts' deposit with the drawee. The first of these need not detain us. Beecher v. Cosmopolitan Trust Co., 239 Mass. 48. Legniti v. The Mechanics & Metals National Bank, 230. N. Y. 415. The identity of the fund was not maintained and no one expected it to be: See National City Bank v. Hotchkiss, 231 U. S. 50, 56, 57. The bankrupts undertook to ' forward ' advice but only to ' provide ' the drawee with funds. The second conterition was that which prevailed below. Of course there is room for difference if the parties did not express very clearly what they wanted or meant, but we are led to a different conclusion whether the reliance be upon the rights of the holder or upon the original contract between the respondent and the bankrupts. In the first place the ignorance of the whole affair on the part of the holder and the general understanding that the party dealing immediately with the bank having the ' Bills Payable ' account is master of it, as between himself and the bank, are quite inconsistent with the notion that an entry on that account is the appropriation of a fund to the holder's use. The respondent tries to give a different turn to the evidence but the master's finding and our own conclusion from the testimony leave no. doubt in our minds. It is true that after such an entry the interest allowed to the depositor stops but that is only a convenient way of giving compensation to the bank. It is not uncommon in commercial transactions to see some of the elements of an earlier or a half imitated transaction appear, although the essentials of the transaction are not there. Whether a fund was appropriated or not depended wholly on the dealings between the bankrupts and the Italian bank; and both of them dealt with the account as subject to the bankrupt's control. The cessation of interest was for the benefit of the bank because the account was only with its general funds, and did not have any assets especially set aside and appropriated to it — in short was a bookkeeping device for the convenience of the bank.
Again, the terms offered by the bankrupts to their correspondents seem to us to promise the appropriation of a specified fund to the draft as little as they promise to apply the money received by them to that end. They are to provide the drawee banks with sufficient funds for the payment of the drafts by transfer of credit ' from our balance or otherwise '. They are to provide, that is, as convenient to themselves, for payment by the drawee banks, • not to give them an . earmark . corpus to be handed over. They are requested b,y their correspondents to protect the drafts, which again means, merely to see that they are paid. Wabash, St. Louis & Pacific Ry. Co. v. Ham, 114 U. S. 587, 596. People dealing with large banks do not ordinarily seek the ambiguous security of an identified fund, they are satisfied if the bank gives-them credit. We see no indications that the Trinidad ' bank was not perfectly content to know that it would have credit with the Banca Commerciale, and that in the usual course of things its drafts would be paid. • Evidently with this conception of their duties the bankrupts' asked the Italian bank "to protect to the debit of our, account-the drafts " -in question and others, and the branch ^ bank to "honor the above listed drafts." 'That such a,, letter of advice is not an assignment is-clearly explained in Eastman Kodak Co. v. National Park Bank, 231 Fed. Rep. 320, 323; (affirmed, 247 Fed. Rep, 1002.)
We have called , the . instrument under'which the respondent claims as assignee, a draft. But on its face it is called * check '. The form was a general form furnished by the bankrupts and the purpose is said to have been that in continental Europe or some parts of it checks are not subject to the same , stamp tax as drafts. It is1 said in a reputable work that the fact that the instrument purports-to be drawn upon a deposit is what constitutes it a check. Daniels,. Negotiable Instruments, 6th ed., §1569. The existence, of .this opinion sufficiently explains the words of the document before us 'Pay from balance against this check'. They no more purport to assign a fraction of a fund than does an ordinary check. They would not naturally take that shape as the respondent, the drawer of the check, had no fund in the hands of the drawee.
The decision of this case depends more, upon the general import of. the transaction and upon what the parties were likely to want than upon the phrases that can be picked out from the several steps. We repeat that in oiir opinion what the parties meant to .establish and what the respondent got was the assurance of a credit abroad to the extent of its check as in the case of a letter of credit, not an attenuated property right in an account to which no special funds 'were attached and the particulars of which neither the respondent- nor the purchaser of the check could know. Order reversed.