Opinion
March Term, 1900.
Homer Weston, for the appellant.
Ceylon H. Lewis, for the respondent.
The plaintiff did not realize that Mr. Rodger deposited the check to her credit in the bank. She assumed he took it for collection and was to pay her the avails in cash. The collection through the New York bank, the commingling of the fund with his own, and the subsequent giving of the draft to her were all links in the chain with the purpose to stem the tide of financial embarrassment setting toward Rodger. The plaintiff, unacquainted with the business and with Rodger's circumstances, was an unwitting participant in the project. The transaction did not occur in the banking office, and she had no expectation that his retention of the check was to make her a creditor of his banking company. Accordingly, the general rule that one who deposits in a bank becomes its creditor has no application to her case. He was her agent to get the money on this check for her, and the subsequent transactions terminating in the deposit to the credit of Rodger Co. in the New York bank were wholly in excess of his authority.
The doctrine is well settled that where a bank or an individual receives a check for collection the proceeds are the property of the owner of the check and do not pass either to the original collecting agent or to its correspondent bank. ( National B. D. Bank v. Hubbell, 117 N.Y. 385; Nat. Park Bank v. Seaboard Bank, 114 id. 28.)
O'Connor v. M. Bank ( 124 N.Y. 324); People v. Merchants Mechanics' Bank (78 id. 269), and cognate cases relied upon by the appellant's counsel, hinge upon the fact that in each instance there was a voluntary deposit in the bank so that the depositor became its creditor in common with the other depositors. So in Metropolitan Nat. Bank v. Loyd ( 90 N.Y. 530) the check was not left with the bank for collection, but by direction of the depositor credit was given him for the amount on its presentation and he could demand payment or withdraw the fund at any time. This necessarily vested the bank with the absolute title to the check and that ownership passed to its transferee.
Rodger, therefore, had no other duty to perform in regard to the check than to collect it and turn over the avails to his principal, the plaintiff. When he intermingled the proceeds with the general account of Rodger Co. he misappropriated them. Their character as a trust fund, however, still adhered to them. The fact that they were incapable of specific identification did not debar the plaintiff from following the money. If the rights of intervening depositors had attached to the fund a court of equity possessed the power to unravel and adjust those rights. The significant fact, however, appears without dispute that from the time credit was given to Rodger Co. by its New York correspondent until the removal of the fund by the assignee in February, there was more than sufficient money to the credit of Rodger Co. to honor this draft of the plaintiff. The banking company treated it as having been paid in their statement, and knowledge of its non-payment was derived from the New York bank. After the credit arising from the collection of these checks, whatever withdrawals were made on the drafts and checks of Rodger Co. presumptively were rightfully withdrawn, and, hence, the trust fund remained continuously unimpaired. ( Matter of Holmes, 37 App. Div. 15; affd. on opinion of Appellate Division, 159 N.Y. 532; Importers Traders' Nat. Bank v. Peters, 123 id. 272; National Bank v. Ins. Co., 104 U.S. 54.)
A trustee cannot, by mingling the funds of his cestui que trust with his own, thereby rendering it impossible to trace the identical moneys, destroy the fiduciary character of the deposit. It is fundamental that where there has been a conversion or misappropriation of property, the rightful owner can retake it wherever found. If it is money and not susceptible of precise identification because commingled with other moneys, the entire fund will be impressed with the trust. The wrongdoer cannot escape liability because he has made his fraud difficult of detection. The only variation from the rule attaching the whole fund with the trust arises, when it is necessary to require identification to guard the rights of others. ( Holmes v. Gilman, 138 N.Y. 369; Van Alen v. American Nat. Bank, 52 id. 1.)
As was said by Chief Judge CHURCH in the case last cited (at p. 7), "When a trustee deposits trust moneys in his own name in a bank with his individual money, the character of the trust money is not lost, but it remains the property of the cestui que trust. If such money can be traced into the bank, and it remains there, the owner can reclaim it."
In Matter of Cavin v. Gleason ( 105 N.Y. 256) the trustee diverted the fund but it never came into the custody of the assignee, so he was not charged with its payment. In this case, as has been said, there never was a reduction in the fund below the amount of this draft, so it was impressed with the trust when turned over to the assignee.
As the Chase National Bank has paid over the entire fund to the assignee, it is not interested in this controversy. A different situation might be presented if the bank had paid out the money innocently on checks of Rodger Co. Hatch v. National Bank ( 147 N.Y. 184) and Nassau Bank v. Nat. Bank of Newburgh (159 id. 456), and like cases, had that circumstance as a potent factor, and are not, therefore, akin to this case.
The solution of these transactions is necessarily colored by the fraudulent conduct of Rodger. ( Importers Traders' Nat. Bank v. Peters, 123 N.Y. 272.)
At the time the check was retained by him, both he and his banking company were hopelessly insolvent, and that had been the condition for some time. He was cognizant of the situation, and it was his duty to apprise the plaintiff of it. His failure to do this made his acquisition of the check fraudulent, even if the plaintiff had known he was to use it. ( Spring Brook Chemical Co. v. Dunn, 39 App. Div. 130; Cragie v. Hadley, 99 N.Y. 131; Grant v. Walsh, 145 id. 502.)
Had this been property which could have been reclaimed in specie, that would have been the proper remedy. The check fraudulently acquired had been converted into money, and the only course open was to follow this equivalent which was the result of the wrongdoing of Rodger.
The judgment should be affirmed, with costs.
All concurred, except WILLIAMS, J., not sitting.
Judgment affirmed, with costs.