Citizens' Bank v. Bank of Greenville

1. Trust. Bank. Insolvency. Charging assets. Collections. A cotton buyer bought and shipped cotton, and drew his draft on the consignee in favor of the Bank of Greenville, which took it and agreed to pay his checks given in purchase of the cotton. One stich check the • Citizens’ Bank acquired in due course, and for it accepted, in lieu of money from Bank of Greenville, its draft on its New York correspondent, which was returned unpaid, the Bank of Greenville having failed. Held, these facts do not create a trust in favor of the Citizens’ Bank in respect to the assets of the Bank of Greenville in the hands of a receiver for the amount of the unpaid draft. 2. Same. Collecting hank. Charging as trustee. Nor can said Citizens Bank charge the New York bank, as trustee, for the amount of the unpaid draft, because of the fact that it collected the bill of exchange drawn on the consignee of the cotton, and credited it to the overdrawn account of the Bank of Greenville after the latter had failed . and passed into the hands of a receiver. 3. Same. Insolvent bank. Collection. Subrogation. The said Citizens’ Bank having waived its right to demand from the Bank of Greenville payment of the check in money, and having taken the draft on New York instead, stands just as any other creditor of the insolvent bank, and for this reason, and because the buyer and seller are without cause for complaint, there is no room for the doctrine of subrogation.

From tlie chancery court of Washington county. IIon. W. 11. Trigg, Chancellor. The Citizens’ Bank of Greenville, Miss., exhibited its bill against the Bank of Greenville and W. A. Pollock, its receiver, seeking to impress a trust on the assets of the latter bank for the amount of two bills of exchange. The facts out of which it is claimed a trust arose in favor of plaintiff are stated in the opinion. An amended bill was subsequently filed by leave of court, joining as defendants the Ilanover National Bank of New York and certain persons in this state alleged to be indebted to it. By this amended bill complainant also seeks to charge the Ilanover National Bank, as trustee, for the amount of the hills of exchange which were drawn against the consignee of the cotton, which were forwarded to it by the Bank of Greenville and collected after it had failed and passed into the hands of the receiver. The contention of the complainant in this regard is that, having paid the checks given in purchase of the cotton, it is entitled to be subrogated to whatever rights the sellers of the cotton would have had against the proceeds; that the bills of lading for the cotton were attached to the draft drawn by the cotton buyer against the consignee, and, on the collection of this draft b3^ the Hanover National 'Bank, it should have held the amount in trust, and" should now be chargeable in favor of complainant as trustee thereof. The bill also prays a personal decree against Pollock, alleging that, as president of the Bank of Greenville, he knew that the drafts given to plaintiff in payment of the checks would not be paid, and that his conduct in inducing complaiuant to accept said drafts in lieu of money was a fraud which, should render him personally liable. G-. D. Thomas, the successor of Pollock as receiver of the Bank of Green-ville, was admitted to defend, and the Bank of Greenville, the receiver and Pollock demurred to the original and amended bills, and, the demurrers having been sustained and complainant having declined to amend, the bills were dismissed as to the demurrants. A pro confesso decree was rendered against the Hanover National Bank and others, defendants to the amended bill, but was subsequently set aside by the court, for the reason that the amended bill did not state a case for relief. The Citizens’ Bank appeals. The Hanover National Bank, with fall knowledge of the manner in which the cotton business was being conducted, collected the bills of exchange drawn on the consignees, and applied the proceeds to the general credit of the Bank of Greenville. But it was cautious enough not to pay the hills of exchange given on it for the very purchase-money of the cotton. By reason of the frauds of the appellees, and the acts of the Hanover Bank, appellant lost recourse on the drawers of the checks, the cotton bills given to provide for them having been collected and the proceeds misapplied, and the Bank of Greenville having become insolvent. Practically, the appellant was the seller of the cotton. It cashed the checks given to the sellers of the cotton, and took them just as they would have done. The cotton was never paid for by the broker, whose money for that purpose is now in the hands of the Hanover National Bank. The latter cannot claim to be bona fide purchasers of the cotton bills. The Greenville Bank and the Hanover Bank, the one expressly and the other by implication, undertook the duty of providing for the payment of the broker’s checks given to pay for the cotton. The latter bank was acting as collector, and stands in no better attitude. It had no right to apply it to the appellee’s overdrawn account. See Kennedy v. Windsor, 52 Miss., 164; Kinney v. Paine, 68 lb., 258. When one has received money which he cannot conscientiously withhold from another, he will be treated as a trustee in invitum. 2 Story’s Eq. Jur., 1255; Rank v. Rice, 107 Mass., 87. The fact that a receiver has intervened makes no difference. He holds the bank’s property subject to all the equities under which it held them. It is immaterial whether the identical moneys collected by the bank passed into the hands of the receiver or not. In some shape or other they went to swell the assets which fell into his hands. Complainant has the right to trace the trust-fund into the estate of the defaulting agent. 1 Jones on Liens, § 37. The appellant should be subrogated to the equities of the cotton buyers. These deposited with the Bank of Green-ville their bills of exchange, with bills of lading attached, in trust to be utilized to meet the checks given to the sellers of the cotton. The checks were taken up, and worthless bills of exchange on the Hanover National Bank given for them, and contemporaneously the cotton bills were transmitted for collection. Appellant paid the sellers of the cotton, and took the checks of the cotton buyers on the Bank of Green-ville. Every possible requisite for the equitable subrogation is therefore present. 71 Am. Dec., 196; 1 Story’s Eq. Jur., 646; Osborn v. Noble, 46 Miss., 449 ; Harvey v. Warren, 47 N. W. Hep., 747; Shattuck v. Cox, 27 N. E. Bep., 609; Koehler v. Bank, 5 N. Y., 745. , The doctrine of subrogation, being the creation of courts of equity, is so administered as to secure essential justice without regard to form, and is independent of any contractual relation. 2 S. E. Bep., 335; 7 At. Bep., 788; 7 Eed. Bep., 919; 93 Pa. St., 318; Hines v. Potts, 56 Miss., 346. The doctrine of subrogation is not involved. Its principle is the substitution of another person in the place of a creditor in relation to the debt. Staples v. Fox, 45 Miss., 667. It implies a succession of rights. Hall and Pullen are not creditors of the Bank of Greenville. Complainant voluntarily paid the checks of Hall and Pullen given to the sellers of the cotton, and, even if Hall and Pullen had a claim against the Bank of Greenville, complainant would have no right to be subrogated thereto. They occupy no relation of suretyship to them, and there was no implied agreement that any security should be assigned or kept alive for the benefit of complainant. Sanford v. McLean, 3 Paige, 116. Complainant surrendered the checks of Hall and Pullen without payment by the Bank of Greenville. It did so because it relied upon the New York drafts being paid. Complainant occupies no better position than other creditors of the insolvent bank. The sellers of the cotton have been paid. The buyers obtained credit for a draft given on the consignees, and their checks given to the sellers have been paid and surrendered, and the case is simply one where complainant, having acquired, in the usual course, checks on the Bank of Greenville, confided in it and became its creditor. Even if complainant could be treated as enforcing a lien for the purchase-money of the cotton, this could only be done while the cotton was in the hands of the first vendee. See 105 N. Y. Pep., 256; 103 H. S. Sup. Ct., 670. Complainant is entitled to no relief against any one, but must be content with its pro rata share of the assets of the Bank of Green-ville. The only possible ground upon which the jurisdiction of equity can be sustained is that the bill seeks to impress a trust upon certain assets. Aside from that, the action against the bank and Pollock as an individual would have to be brought in the law court. There being no trust, the court rightfully dismissed the bill as to the bank, and, a fortiori, rightfully dismissed it as to Pollock. If Pollock be liable at all, it is in tort, for fraud in issuing the bills of exchange. Equity has no jurisdiction in such a case, as the remedy at law is full, adequate and complete. 1 Pom. Eq. Jur., 178. 'When an action at law will furnish an adequate remedy, equity will not assume-jurisdiction merely because an accounting is demanded or needed, or because the case involves fraud. 1 Pom. Eq. Jur., 178, n. 2; Russell v. Clark, 7 Cranch, 69.