The Warren-Scharf Asphalt Paving Company, Plaintiff, v. George W. Dunn, as Receiver of The Merchants' Bank of. Binghamton, Defendant

The Warren-Scharf Asphalt Paving Company, Plaintiff, v. George W. Dunn, as Receiver of The Merchants’ Bank of. Binghamton, Defendant. Receiver of a corporation—liability of, for a trust fund held by the corporation— extent of the preferences, in payment from the assets, to which the beneficiary of the trust fund is entitled. In an action submitted upon an agreed state of facts, it appeared that on January 17, 1895, the Merchants’ Bank of Binghamton held two warrants of the city of Binghamton, amounting to §8,133.80, drawn in favor of the plaintiff and received by the bank as agent for the plaintiff for the purpose of their collection, and that on that day it surrendered them to the city treasurer and received in return his check upon the National Broome County Bank for §2,923.94, the balance, §209.86, being withheld by the city treasurer to pay an assessment due to the city from the Merchants’ Bank. On the same day the Merchants' Bank, through the city clearing house, presented and surrendered for payment to the National Broome County Bank the check for §2,923.94, as well as ten other checks, drawn upon the latter bank by its depositors, amounting in all to §3,224.93, and. on the same day, through the city clearing house, the National Broome County Bank presented for payment and surrendered to the Merchants’ Bank checks drawn upon it, by its depositors, for §2,338.46, -and also checks amounting to §353.42, owned by the National Broome County Bank and drawn upon private bankers styled E. Ross & Sons by their depositors, for which private banking house the Merchants’ Bank was the clearing house agent. As a result, the National Broome County Bank gave the Merchants’Bank a check upon the National Park Bank of New York for the difference, §533.05, which was deposited in its account in the American Exchange Bank of New York. On the 21st day of January, 1895, the Merchants' Bank became insolvent, and on January 29, 1895, the defendant was appointed its temporary receiver, up to "which time from the date of the deposit of the §533.05 check therein, the .account of the Merchants’ Bank with the American Exchange Bank was at all times good for a much larger sum, and passed with other assets of the Merchants’ Bank to the defendant as receiver. The checks held by the National Broome County Bank, and drawn upon the Merchants’ Bank, aggregating §2,338.46, were charged by the Merchants’ Bank to its respective depositors whose accounts were all good for the amounts so charged. The checks aggregating §353.42, drawn upon the private banking house of E. Ross & Sons, were charged by the Merchants’ Bank to that concern, and the claim of the Merchants' Bank thereon has never been paid, as .the concern of E. Ross & Sons became insolvent on January 21, 1895, and upon that day made a general assignment for the benefit of creditors. At the close of the clearing house transactions on January 17, 1895, the Merchants’ Bank had in cash more than §3,000, and it had such a sum at all times up to the time of the appointment of the receiver. The plaintiff demanded of the receiver the amount of the city warrants, to wit, the sum of §3,133.80, but the receiver refused to pay it. Held, that as the Merchants’ Bank was the agent of the plaintiff, in so far as the warrants, or their avails, could be traced into the assets of that bank which passed into the hands of the defendant, the receiver, he must account for them to the plaintiff, in whose favor a trust was impressed upon them; That as the checks making up the item of §2,388.46, which were charged by the Merchants’ Bank in the accounts of its depositors by whom they were drawn, brought nothing to the Merchants’ Bank, but simply discharged to that extent its obligations to such depositors, they did not constitute an asset which passed to the receiver; That the contention, that the use by the Merchants’ Bank of the city treasurer’s check saved that bank from using so much of the cash on hand, and that, consequently, so much of this cash as equaled the amount of the check might fairly be said to be the avails or proceeds of the check, could not be sustained; That a beneficiary of a trust could not be entitled to a preference out of the assets of the trustee, except in so'far as he could trace and identify his own fund, or the clear avails of it; That as the draft or check drawn upon the National Park Bank of New York, and deposited in the American Exchange Bank, remained intact, the plaintiff was entitled to receive its amount from the defendant, and also all that the defendant might collect upon the checks drawn upon the private banking house of E. Ross & Sons. Submission of a controversy upon an agreed statement of facts pursuant to section 1279 of the Code of Civil Procedure. The facts, as stated in the submission, were as follows: The plaintiff now is, and at the times hereinafter mentioned was, ■a corporation, organized and existing under and by virtue of the laws of the State of New York. During all the time, for more than three years prior to April 18, 1895, the Merchants’ Bank of Binghamton, N. Y., was a banking ■corporation, organized and existing under chapter 409 of the Laws ■of 1882, of the State of New York, and the various acts amendatory thereof. On January 21,1895, said bank became insolvent, and was on that day closed by the Banking Department of the State of New York, and ceased doing business. Thereafter, and on or about the 26th day of January, 1895, an action was commenced in the ■Supreme Court of this State, by the People of the State of New York, plaintiff, against said Merchants’ Bank, defendant, for the purpose of procuring the dissolution of said corporation, and the forfeiture of its corporate rights, franchises and privileges, and the appointment of a receiver thereof. On or about January 29, 1895, the defendant George W. Dunn was, by an order of this court duly granted and entered in said action, duly appointed temporary receiver of said corporation, and thereupon duly qualified and entered upon the discharge of his duties as such temporary receiver. On or about the 18th day of April, 1895, by a judgment of this court, duly rendered on that day, said corporation was dissolved and its corporate rights, privileges and franchises forfeited; and on account of such insolvency, in and by said judgment, this defendant was duly appointed the permanent receiver of said bank, and duly qualified and entered upon the discharge of his duties as such, and is now such receiver, duly qualified and acting. On or about November 22, 1894, the plaintiff executed and delivered to the said the Merchants’ Bank an instrument in the following -words and figures, to wit: “ No. 348. “ Office of Wabben-Schabf Asphalt Paving Company, ) “ 81 Fulton Street. f “ New Yobk, November 22cl, 1894. “ Know all men by these presents, That we, the Warren-Scharf Asphalt Paving Company of New York, hereby constitute and appoint the Merchants’ Bank of Binghamton, N. Y., attorney and agent for us and in our name, place and stead, to collect and receive any and all moneys and city warrants due or to become due and payable to us under contract made between ourselves and the city of Binghamton, N. Y., for the paving of State street from Court street to Henry street; Commercial avenue from Court street to end of brick pavement; Court street under R. R. bridge; Henry street from Chenango street to Fayette street, and Chenango street from Court street to Lewis street; meaning hereby to give the said Merchants’ Bank full power and authority to use our name in any way necessary and proper for the collection and receiving of said moneys and city warrants. “ In witness, whereof we hereunto set our hand and seal this twenty-second (22nd) day of November, A. D. eighteen hundred and ninety-four (1894). “ WARREN-SCHARF ASPHALT PAVING COMPANY. “ By F. W. White, Treas. “ [oobpobate seal.] Henby L. Bbadbuby, Secy.” Prior to January IT, 1895, the city of Binghamton had issued two city warrants, drawn in favor of the plaintiff, for sums aggregating $3,133.80, which sums represented amounts due the plaintiff under the contract referred to in the instrument above set forth; and on the date last mentioned said two city warrants were delivered to said Merchants’ Bank by plaintiff, and on that date the said Merchants’ Bank, acting solely under the powers and provisions of the said instrument above set forth, presented and surrendered the said warrants to the treasurer of the city of Binghamton. In exchange for said warrants, and at the time of such surrender, the Merchants’ Bank received from said city treasurer his check for $2,923.94, drawn in favor of said Merchants’ Bank, upon the National Broome County Bank, the difference between the amount of said warrants, §3,133.80, and the amount of said check, §2,923.94, being the sum of $209.86, having been withheld by the city treasurer and applied by him in payment of an assessment due to the city of Binghamton by said Merchants’ Bank. On the 17th day of January, 1895, the Merchants’ Bank, through' th§ clearing house in the city of Binghamton, presented for payment, and surrendered to the National Broome County Bank, the said city treasurer’s check for $2,923.94, together with ten other checks drawn upon the National Broome County Bank by depositors therein, and owned by said Merchants’ Bank, which said eleven (11) checks aggregated in amount the sum of $3,224.93. At the same time, and through the said clearing house, the National Broome County Bank presented for payment and surrendered to the Merchants’ Bank: 1. Checks held by said National Broome County Bank, and drawn on the Merchants’ Bank by depositors therein, aggregating §2,338.46. 2. Checks aggregating $353.42, which were held or owned by the the National Broome County Bank, and which had been drawn upon the private banking house of E. Ross & Sons by depositors therein,, for which private banking house the Merchants’ Bank was the clearing house agent. The difference between the aggregate amount of checks so surrendered to the National Broome County Bank by the Merchants Bank ($3,224.93), and the aggregate amount of checks so surrendered by the National Broome County Bank to the Merchants’ Bank (§2,691.88), was, on said seventeenth day of January, paid by a check for $533.05 drawn by the National Broome County Bank to the order of the Merchants’ Bank, upon the National Park Bank of New York. The last-mentioned check was forthwith deposited by the Merchants’ Bank -in the American Exchange Bank of New York, and by the last-named bank credited to the deposit account of the Merchants’ Bank therein. From the time of such deposit to the time when defendant was appointed temporary receiver of the Merchants’ Bank, the said account of the Merchants’ Bank with the American Exchange Bank showed a balance to the credit of the Merchants’ Bank in an amount largely exceeding $533.05. On January 16, 1895, said Merchants’ Bank had on deposit to its "Credit in said American Exchange Bank the sum of $25,267.34. At ■different times between the 17th and 21st days of January, 1895, •said Merchants’ Bank deposited with said American Exchange Bank moneys aggregating the sum of $58,770.03; and during the same period and on different occasions drew out of said bank, by draft and otherwise, amounts aggregating the sum of $52,123.04. The balance on deposit in said American Exchange Bank to the ■credit of said Merchants’ Bank at the time said Merchants’ Bank was closed, and at the time the defendant was appointed temporary receiver as aforesaid, was at all times collectible from the American Exchange Bank and passed with the other assets of the Merchants’ IBank to the defendant as its receiver. The checks held by the National Broome County Bank, drawn on the Merchants’ Bank by depositors therein, aggregating $2,338.46, and received by the Merchants’ Bank on January 17, 1895, from said National Broome County Bank in exchange for said city treasurer’s check as aforesaid, were on January 17,1895, charged by said Merchants’ Bank to the respective general deposit accounts in said last-named bank of the various persons drawing the same, which •accounts were good for the amount of said checks. The checks aggregating $353.42, drawn upon the private banking house of E. Ross & Sons by depositors therein, and received by the Merchants’ Bank on January 17, 1895, from said National Broome •County Bank in exchange for said city treasurer’s check as aforesaid, were, on or about January 17, 1895, charged by said Merchants’ Bank to such private banking house on the books of the Merchants’ Bank, and the amount of said checks ($353.42) constituted the claim on the part of the Merchants’ Bank against said private banking house at the time the Merchants’ Bank was closed and at the time •of defendant’s appointment as receiver. Except as aforesaid, nothing has ever been received by said Mer-chants’ Bank, nor by this defendant, upon any of said checks, aggregating $353.42, drawn upon the .private banking house of E. Ross & Sons, nor upon the checks, aggregating $2,338.46, drawn upon said Merchants’ Bank as aforesaid. On January 21, 1895, the said private banking house of E. Ross •;& Sons and its individual members, were and ever since have been and now are insolvent. On said January 21, 1895, said private banking house and its individual members made general assignments for the benefit of creditors in insolvency. No part of said claim on account of said checks against the said banking house has been paid. At the close of the said clearing house transactions on January 17, 1895, the Merchants’ Bank had in cash upwards of three thousand dollars ($3,000); and from that time until the time of defendant’s appointment as its receiver, it had in cash upwards of the last-named sum. Whatever cash the Merchants’ Bank had at the time of defendant’s appointment as its receiver came duly into his possession. The plaintiff has never received, any part of the amounts represented by the city warrants above referred to, and defendant has in his possession as receiver of the Merchants’ Bank assets more than sufficient forthe satisfaction of the plaintiff’s claim, but not sufficient assets to pay the creditors of said bank in full. Immediately upon the appointment of defendant as receiver, as aforesaid, the plaintiff demanded from him the amount of said city warrants, to wit, the suns, of $3,133.80, claimed by the plaintiff to have been collected by the said Merchants’ Bank, as aforesaid, as agent for the plaintiff. Defendant refused to comply with such demand, except under order of the court, and thereupon the plaintiff presented a petition to the Supreme Court of Broome county for an order directing the receiver to pay plaintiff the amount claimed to have been so collected, which petition was, on or about the 5th day of June, 1895, denied upon tlie ground that the facts involved were disputed, and that the plaintiff’s right should, therefore, be determined by action. The plaintiff asked judgment directing the defendant, out of the assets held by him as receiver of the Merchants’ Bank, to pay to plaintiff the sum of $2,923.91, with interest at the rate of six per cent from the 17th day of January, 1895, or such other sum as to the court shall seem proper, and the costs and disbursements of the action, or that plaintiff have such other relief as may be proper. The defendant asked judgment denying the relief asked for by plaintiff, and dismissing the plaintiff’s claim upon the merits, and for the costs and disbursements of the action, and for such other or further judgment or relief as may be proper in the premises. Wm. Pierrepont Williams, for the plaintiff. Lyon, Painter c& Hinman, for the defendant. [MAJORITY — Parker, P. J.:] Parker, P. J.: The Merchants’ Bank held the two city warrants aggregating $3,133.80 as the agent of the plaintiff to collect and receive the amount due thereon, and all that it did receive it of course held in trust for this plaintiff. It surrendered such warrants to the city treasurer, upon whom they were drawn, and in exchange therefor it ■received two things: First, the city treasurer’s check on the National Broome County Bank for $2,923.94; and, secondly, payment and satisfaction of its own taxes, due from it to the city of Binghamton, to the amount of $209.86. We may assume, I think, as a settled rule of equity that just so far as the above items or their proceeds were included in the assets of the Merchants’ Bank that passed to the possession or control of this defendant, as its receiver, a trust in favor of the plaintiff may be impressed upon them; and just so far as they or their avails can be identified, so far they still belong to the plaintiff and the receiver must account to it for that amount. (Matter of Cavin v. Gleason, 105 N. Y. 2561 Holmes v. Gilman, 138 id. 376.) It seems clear, as a matter of fact, that as to the item of $209.86, the bank received nothing from the treasurer except a satisfaction and discharge of its taxes. In other words, it used so much of the plaintiff’s demand against the city to pay its own debt. As to the check of $2,923.94, it had disposed of it some time before the receiver was appointed. But the question is, have any of the avails of that check passed to the receiver, or can they be traced and identified as forming a part of the assets of the bank that did pass to him ? The check, in effect, was presented to the National Broome County Bank for payment. No money was received on it. But such check and ten others, amounting in the aggregate to $3,224.93, were paid by such National Bank as follows: First. By surrendering to the Merchants’ Bank checks drawn upon it to the amount of $2.338.46. Such checks were drawn by its depositors and were debts to that amount existing against the Merchants’ Bank, and the practical effect of such exchange was to pay so much of the bank’s debts. Secondly. By transferring to the Merchants’ Bank checks owned by the National Bank drawn upon E. Ross & Sons to the amount of $353.24. Such checks were held by the Merchants’ Bank at the time its doors were closed, and they passed to the receiver as part of its assets. No part of such amount has as yet been collected by the receiver. Lastly, for the balance of such claim against the National Bank of $3,224.93, the Merchants’ Bank received a draft on the National Park Bank of New York for the sum of $533.05. Now, what of these items, received by the Merchants’ Bank from the National Bank, can be traced into the assets which passed to the receiver? As to the checks drawn against E. Ross & Sons, it is plain that they are a part of such assets, and upon them would seem to be impressed a trust in favor of the plaintiff within the rule above stated. Whatever the receiver collects upon those demands should be accounted for to the plaintiff. As to the item of $2,338.46, thé checks which constituted it were but vouchers in the hands of the Merchants’ Bank of the payment by it so much oE its debts. Each check was charged up against its drawer on the books of the bank, and so much of the bank’s indebtedness to each was thereby discharged. (People v. St. Nicholas Bank, 77 Hun, 159.) But nothing came to the bank that could constitute an asset; nothing was thereby received that could pass to the receiver. But it is claimed on the part of the plaintiff that, by thus using the city treasurer’s check, which belonged to the plaintiff, to pay its own debts to its depositors, the Merchants’ Bank saved just so much of the cash that was then in its vaults. It appears that it had, at that time, upwards of $3,000 cash on hand, and the claim is that by using this check it saved using that cash, and that, therefore, so much of the cash on hand as equals the amount of the check so used may be fairly said to be the avails or proceeds of such check. I cannot agree with that proposition. Suppose the Merchants’ Bank had received from the National Broome County Bank upon the treasurer’s check $2,338.46 in cash. That money would have belonged to the plaintiff. If subsequently the bank used such money to purchase a security or to discount a note or to pay an overdraft upon it, the security, note or claim which would accrue to the bank for such use would be impressed with a trust in favor of the plaintiff; but if it used it merely to pay and discharge its own indebtedness, it received nothing whatever upon which a trust could be impressed. It is important to understand that, as to this item, nothing whatever was brought back to the Merchants’ Bank for the benefit of the plaintiff. No cash was put in its safe. None was set apart or appropriated to the payment of the plaintiff’s claim. It is" not a case where the plaintiff’s funds were mingled with those of the bank, but a case where the plaintiff’s money is plainly traced to the payment of the bank’s debt. If we.should go to the extent of saying that the money in its safe should be impressed with a trust to the extent of the fund so used, it certainly could not he upon the theory that it was the avails or proceeds of such fund, or that it had been produced from it, for plainly such money was not acquired from, and never had any connection whatever with, such fund. And if the rule should be so far extended, there does not seem to be any reason why the trust should not be impressed upon any property belonging to the bank, for not only was its money, but so also were all its assets, relieved from the burden of paying the debts which the plaintiff’s money was used to discharge. The result would be that in all cases where a trustee’s assets are insufficient to pay all its debts, the beneficiaries, no matter how many there were, would have a preference over all other creditors upon all the assets of the insolvent. But such is not the rule. In the distribution a beneficiary is entitled to no preference except so far as he can trace and identify his own fund or the plain avails of it. (People v. Merchants’, etc.,. Bank, 78 N. Y. 269.) To that extent he may justly claim a preference ; beyond that there is no reason apparent to me why he should be given any. In accordance with this view, so much of the treasurer’s check as was used to pay the various cheeks drawn by its depositors upon the Merchants’ Bank, viz., the sum of $2,338.46, forms no part of the assets which passed to the defendant as receiver, and the plaintiff has no right to be preferred for the same. As to the draft for $533.05, drawn upon the National Park Bank of New York, it was deposited to the credit of the Merchants’ Bank in the American Exchange Bank, and at once became part of its assets. From the time of such deposit up to the time defendant was appointed receiver, the account of the Merchants’ Bank, in the American Exchange Bank, remained intact. It was increased somewhat by additional credits, but in no respect was it diminished. When the receiver was appointed he took such account as part of the bank’s assets. I think we are justified in concluding that the whole amount of such draft formed a part of the account that so passed to the receiver. The Merchants’ Bank paid to the National Broome County Bank $2,338.46 of its indebtedness as above stated. It paid $301 of this amount with ten checks which belonged to itself, and for the balance, $2,031.46, it used the funds of this plaintiff. The whole amount of the plaintiff’s funds which it then had was $2,923.94, and the balance remaining after such payment was $886.48. For this-amount it received the ciiecks against E. Ross & Sons, $333.42, and the draft on the National Park Bank of New York for $533.05. Such, last two items appear to have been among the assets of the bank, as. already shown, and upon them a trust is impressed in favor of the plaintiff. My conclusion is that the defendant should pay the plaintiff the sum of $533.05 from the amount received by him from the American Exchange Bank. Also, that he account for and pay over to> the plaintiff all that he collects upon the checks against E. Ross cfc Sons which were received by him as above stated. And that, as to-all the balance of the fund which the Merchants’ Bank held in trust for the plaintiff, the plaintiff is not entitled to any preference thereon, but must share equally with all other creditors in the final distribution of its assets. No costs are allowed to either party in this proceeding. All concurred. Judgment ordered that defendant pay to the plaintiff the sum of $533.05 from the amount received by him from the American Exchange Bank. Also, that he account for and pay over to the plaintiff all that he collects upon the checks against E. Ross & Sons, as stated in the submission; and that as to all the balance of the fund which the Merchants’ Bank held in trust for the plaintiff, the plaintiff is not entitled to any preference, but must share equally with all other creditors in the final distribution of its assets. No> costs to be allowed to either party in this proceeding.