The People v. . the City Bank of Rochester ( 1884 )

The record shows that the firm of Sartwell, Hough Ford, doing business at Rochester, were depositors with the Rochester City Bank, and that the bank also from time to time discounted their notes, payable in the city of New York, but with the understanding that they should in fact be paid at the bank. In November, 1882, two of such notes — one for $3,000, and one for $5,000 — were outstanding, and to become due respectively January 6 and January 20, 1883, and they wishing to anticipate payment on the 3d of November so informed the bank in regard to the first note, and then gave, and the bank received their check for the amount of the note, less rebate of interest, in these words:

"$2,963.25 ROCHESTER, N.Y., Nov. 3, 1882.

"The City Bank of Rochester,

"Pay to our note due January 6, 1883, or bearer, two thousand nine hundred and sixty three 25-100 dollars.

SARTWELL, HOUGH FORD."

The bank charged the check to their account, and marked it "paid Nov. 3, 1882," at the same time making an entry in its books "to the effect that said note was paid Nov. 3, 1882." On the 9th of November, 1882, substantially the same transaction was had between the firm and the bank, in reference to the note due January 20, 1883, and the full sum of $7,894.23 was in fact deducted from the amount of the deposits of the firm with the bank. It had, however, in October, 1882, sold both notes and received from the purchaser the avails, but of this the firm was ignorant, and at the time in question supposed the bank held and owned the notes.

In December, 1882, the bank was declared insolvent, and the appellant Atkinson appointed receiver of its property and effects. He states that the cash found by him "in the vaults of the bank was considerably less than $8,000" — how much less is not shown — but before the petition now here was presented to the court he had received about $75,000. The bank did not pay the notes, and the receiver refused to do so without an order of the court. Upon these facts the firm applied by petition to the Supreme Court for such order. It was denied at Special Term, but at the General Term the order of the Special Term was reversed and the application granted, with costs as on an appeal from a judgment. The receiver appeals to this court.

First. The transaction in question was not between the bank and Sartwell, Hough Ford in their relation of debtor and creditor nor in their relation of bank and depositor. The object of the latter was to provide a fund for the payment of specific notes, and the engagement of the former was to apply that fund to such payment. Thus a trust was created, the violation of which constituted a fraud by which the bank could not profit, and to the benefit of which the receiver is not entitled. (Libby v.Hopkins, 104 U.S. 303; In re Le Blanc, 14 Hun, 8; affirmed,75 N.Y. 598.) Those cases stand upon the ground of a specific appropriation of a particular fund for the payment of the claim there brought in question. So does the one at bar. That fact is lacking in the case of People v. Merchants and Mechanics'Bank (78 N.Y. 269), on which the appellant relies; and this distinction is pointed out by the learned judge who delivered the opinion in that case.

Counsel for the appellant contends "that there never was any fund set apart for a particular object, or any intention or purpose to set apart such a fund." I do not regard this, if true, as of much importance, but the appeal papers do not permit us to accept such construction.

The checks of the petitioners were money assets in the hands of the bank and were so treated by all parties; they were delivered to it with explicit directions to apply the proceeds on payment of the notes; those directions were assented to by the bank officer, and the checks collected from the general fund. From that moment the bank was bound to hold the money for and apply it to that purpose, and no other, or failing to do so, return it to the petitioner. As to it, the bank was bailee or trustee, but never owner. It is estopped from saying that all this is matter of book-keeping. It assumed a duty, and the receiver as its representative is bound by it. Nor does this obligation at all depend, as the appellant seems to suppose, upon the question, when, where and to whom the notes were to be paid; whether presently or in the future is immaterial.

The specific object for which the fund was created was the payment of the notes, and its character does not depend upon those incidental circumstances. The checks were impressed with a trust, and no change of them into any other shape could divest it so as to give the bank or its receiver any different or more valid claim in respect to them than the bank had before the conversion. (Van Alen v. Am. Nat. Bank, 52 N.Y. 1; Dows v.Kidder, 84 id. 121.)

Second: As to costs. The application of the petitioners to the court below was not a motion under section 768 of the Code, but a special proceeding for the enforcement or protection of a right under section 3334; costs might, therefore, be awarded in the discretion of the court, as on appeal from a judgment taken to it. (§ 3240.)

We find no error in any part or the order appealed from, and it should, therefore, be affirmed, with costs to the respondent to be paid by the appellant out of any money in his hands as receiver.

All concur.

Order affirmed.