Hutchinson v. National Bank of Commerce , 145 Ala. 196 ( 1906 )

DOWDELL, J.

The Shapard Bank, being insolvent, made an assignment for the benefit of its creditors. This trust was being administered in the chancery court under chapter 113, §§ 4152, 4173, of the Code of 1896. The money claimed by the Bank of Commerce as being held in trust for its benefit was in the hands of the assignees of the Shapard Bank, and held and claimed by the assignees under the deed of assignment. The Bank of Commerce, in filing its petition before the register in chancery seeking a preference over the insolvent bank’s creditors, did not thereby estop itself from asserting a claim to the fund in question as a trust fund held for its benefit. — Winston v. Miller, 139 Ala. 259, 35 South. 853. Under the agreed statement of facts, on which the case was heard by the chancellor, the relation between the Bank of Commerce and the Shapard Bank Avas neither that of creditor and debtor in the ordinary sense, nor of general depositor, bnt rather that of principal and agent. The draft on Erwin & Co., with bill of lading attached, sent to the Shapard Bank for collection by the Bank of Commerce, was coupled with instructions from the latter bank for specific application of the proceeds of the draft when collected. These specific instructions took the particular transaction without the ordinary course between corresponding banks, in which the relation of creditor and debtor, or general depositor, would result; and the collecting bank could not, without the consent of the initial bank, and in violation of the latter’s instructions, alter or change the relation so created, by any subsequent conduct or action of its own in dealing with the proceeds of the draft when collected. The Shapard Bank was insolvent at the time it received the draft for collection, which fact was known to the officers - of said bank, but unknown to the Bank of Commerce. To permit the insolvent bank under such circumstances, by its dealings in the collection of the draft, and in violation of the instructions given, to prejudice the right of the owner of the funds when collected, would be contrary to every principle of equity and justice. The principles above stated, we think, are fully sustained by authority. — Morse on Banking (4th Ed) vol. 2, § 568, and volume 1 of the same author, § § 185, 188, 248 ; Zane on Banks and Banking, § § 174, 190, 344 ; 3 Am. & Eng. Ency. Law (2d Ed.) p. 847, and note 4 ; Grant v. Walsh, (N. Y.) 45 Am. St. Rep. 626.

The doctrine is well established that, so long as trust property can be traced and followed, the property into which it has been converted remains subject to the trust; and, if one mixes trust funds with his own, the whole will be treated as trust property, except so far as he may be able to distinguish what is his. This doctrine applies in every case of a trust relation, and as well to moneys deposited in a bank, and to the debt thereby created, as to every other description of property. — National Bank v. Insurance Co., 104 U. S. 54, 26 L. Ed. 693 ; Evansville Bank v. German Bank, 155 U. S. 556 ; 15 Sup. Ct. 221, 39 L. Ed. 259 ; St. Louis Brewing Co. v. Austin, 100 Ala. 313, 13 South. 908 ; Bircher v. Walther, 163 Mo. 461, 63 S. W. 681 ; Paul v. Draper, 158 Mo. 197, 59 S. W. 77, 81 Am. St. Rep. 296. In the ease at bar, it is shown that Erwin & Co. paid the draft of the Bank of Commerce by their draft on Schuessler & Sons, which was sent by the Shapard Bank to the Bank of Lafayette. The last-named bank collected the money from Schuessler & Sons, which it afterwards paid to the' assignees of the Shapard Bank. So the fund in question is traced directly into the hands of the assignees and was accompanied with the trust character with which it was originally impressed. We concur in the conclusion of the chancellor, and his decree will be affirmed.

Affirmed.

Weakley, C. J., and Haralson and Denson, JJ., concur.