
    L. A. Andrew, State Superintendent of Banking, Appellee, v. Darrow Trust & Savings Bank, Appellee; Citizens National Bank of Charles City, Appellant.
    TRUSTS: Enforcement — Conversion by Officer of Bank — Effect. The 1 act of an: officer of a bank in fraudulently converting to his own use a promissory note which had been sent, to the bank for collection by the bank furnishes no basis for. decreeing to the owner .of the note an equitable .preference in payment out of the assets of the insolvent bank.
    TRUSTS: Enforcement — Presumption of Preservation — Right to Rebut. 2 The presumption that a cash trust fund was preserved in the trustee’s cash balance may be rebutted by the receiver of the insolvent trustee. ■
    BANKS AND BANKING: Collections — Conversion by Officer — Effect. 3 The fraudulent conversion by an officer of a bank of a promissory note which had been sent to the bank for collection by the bank renders the bank liable for the conversion, and the owner of the note must be given the status of a general creditor of the bank.
    Headnote 1: 7 C. J. p. 751. Headnote 2: 39 Oye. p. 540. Headnote 3: 7 C. J. p. 610.
    
      Appeal from Chickasaw District Court. — H. E. Taylor, Judge.
    January 10, 1928.
    Claim for a preference in the funds in the hands of the receiver of an insolvent bank. The trial court denied any relief to the claimant, and the latter appeals.
    
    Modified and affirmed.
    
    
      M. F. Condon and William H. Salisbury, for appellant.
    
      John Fletcher, Attorney-general, and Geiser \& Donohue, for plaintiff, appellee.
   Faville, J.

On December 25,1924, the appellant purchased of the Darrow Trust & Savings Bank of New Hampton a note of $1,900, made by one Klatt and wife. On March 3, 1925, the claimant sent said note to said Darrow Trust & gavings Bank, the letter of advice stating that ° .7 ° saj¿ noté was sent “for collection and returns.” On April 25, 1925, the president of the Darrow Trust & Savings Bank wrote claimant that the maker of said note was arranging, for a loan, and asked to be..permitted to carry the. note, for-a little while. It appears, however, that, on March 4,1925,,Klatt renewed the note by the giving,of.anew one. The old note, which had been sent to the Darrow Trust & Savings Bank.by .claimant.for- .collection,: was stamp,ed/.“paid,-;”..andt‘ surrendered to. the maker at-that time.-rit-appears-thatthe new note was made payable'to1' the Dafrow'Trust ■&' S&vings Bank. This note was not'entered in the bills receivable account of the bank. The’transaction was carried on by A. J, Nolthoif, the president of the Darrow Trust & Savings Bank, but no entries: .appear to,have been made in any of the books of the bank"in.regard to the transaction. There is, no, positive evidence in the .record of- what was done with the new note. It may fairly be inferred from-.the record.,that it,.yms. transferred, tp- ppp;-Wiliams;.; There is no proof, that, it. ever became -an, asset of- .the Dar-row Trust & Savings -Bank. It was not-entered on - the--discount register of the bank, and wak not held by-it. :Th’e claimant did .not authorize any 'such renewal, and did not know that any such renewal note ivas in existence until after the Darro'w bank-closed.

On July 20, 1925, the claimant wrote the Darrow bank, de-manding that it return the Klatt note “by first mail.” Instead of so doing;’óñ July 21,'1925,'A. j. Kolthoff,’ president off the Darrow bank; sent claimant;a check for ‡1,986.55, drawn on the Darrow bank. The check was signed “A. J. Kolthoff, Special Account.” .,Tlie check, ■■was. re.ceivpd by,the claimant.on...July 22, 1925, -and promptly .presented ,for payment; b.ut the Darrow bank, was closed, on July ,22d, -and the .check was not paid. On the.day the bank closed, the “A. J. Kolthoff, Special Account,” carried a credit of-.$2,437.25-. The* Dartow. bank was .placed.in the hands of a receiver, and appellant filed a claim for the -amount of said check, and sought to have a preference established-.therefor. .The trial court denied the claimant the rights of either a depositor or a general creditor...,; : - : . . . ;

,.L "When, appellant sent.the note which it. held to the Bar-, row b.ank for collection.; and re turn,..it. established at once the,relation .of principal-and agent between, it, and .said bank. Page County v. Rose, 130 Iowa 296; Messenger v. Carroll Tr. & Sav. Bank, 193 Iowa. 608; Leach v. Battle Creek Sav. Bank, 202 Iowa 875. The Darrow bank, has.-never accounted- to ¡the appellant for Raid note, and. is liable, in conversion; at least, -for the value of said note, which is presumed to be; the amount due thereon. -The ■important question in- this case-is whether or-not the appellant is entitled- to. have,.a preference established.-in. its -behalf, in-.the funds or assets of the bank that came into the hands of the receiver. - ... • ...... ;

-. . - It is.a general -rule, recognized by .many .pronouncements, of .this, .court, that-a creditor who .asks .that, his claina be .given, a •preference has .the burden- of, showing that-his .property..or the proceeds thereof have-come.into the.hands of the. .receiver- as an increase of the assets, of .the bank. Jones v. Chesebrough, 105 Iowa 303; Bradley v. Chesebrough, 111 Iowa 126; First State Bank v. Oelke, 149 Iowa 662. This right to .-a preference may be .established by-positive proof or by proper presumptions of law. There is no. positive evidence, in, the record that the bank ever .received anything in the-way of proceeds from the appellant’s note. There is some evidence'tending to show, that the renewal note was executed on a form in which, the-Darrow.-bank was..th,e payee, but there, is no direct, .evidence whatever that the bank, as such, ever received said note .or any of the. proceeds of.said note. The evidence shows that the said renewal note did not become a part.of .the. bills receivable of said Darrow bank. ..It fairly appears from.the evidence, that the president, Kolthoff;.secured,the renewal of the note .by the maker,-Klatt,-the ne&t day. after the note was received by .the Darrow. bank from the appellant, and there is evidence indicating ..that Kolthoff sold and disposed of this note to one Williams. If it was.so- sold by Kolthoff,. there .is no -showing that the proceeds of the note passed into the hands of the. bank. The account-in the bank designated as “A. J. Kolthoff, Special Account, ’ ’ does: not show any item traceable to the proceeds of appellant’s note or the renewal thereof; The cashier testified: ...... - . .

“No note of that amount .has-come-.into, the bank during the month.of March, nor any other, month.during the year 1925. Charles .Williams showed..me. a. note,--.soon after :the bank .closed, of $1,900,- signed by ,A. ,C. Klatt, .and indorsed by .his mother, I believe. * * *.I do.not know..what was done with the proceeds of -the note, whether, pjit in cash in .the bank" or put in the.bank.in any other ¡form.., I. wouldn’t know whether it might have been, carried as a part .of the assets, of the, bank and not appear on the books of the bank. The renewal was never entered on the books of the bank. Collections do not appear on the books of the 'bank. I am unable to say whether this might or might .not have become a part of the assets of the bank in one form or another. ” ■

In this state of the record, appellant’s case does not rest on positive evidence. It must rest, if at all, on the presumptions that are to be indulged from such a fact situation as we have outlined. The appellant sent its note to the Darrow bank for collection and return. By so doing, it created the relation of principal and agent, and when it demanded a return of its note, the agent failed and neglected to return the note. As before stated, the bank must be held liable at this point for conversion of the appellant’s property. We may properly indulge the presumption at this point that the bank received the proceeds of the appellant’s property in some form or other. The burden'would rest upon the receiver to overcome this presumption. This we think the receiver successfully did. We have heretofore set out sufficient of the record to show that Kolthoff personally, and not the bank, received the proceeds of appellant’s property. Kolthoff obtained the renewal from- the maker. Kolthoff falsified to the appellant about the maker’s procuring a loan. When finally confronted with a demand for the return of the note, Kolthoff sent his personal check therefor. The bank is liable in conversion for the value of appellant’s propérty, but a preference in trust funds in the bank cannot be established by proof of the conversion of appellant’s property by an officer of the bank, when it appears that the receiver did not receive the'funds in any manner, and the officer acted fraudulently and for his own purposes in misappropriating the funds. As bearing on the rule, see Stilson v. First State Bank, 152 Iowa 724; In re Insolvency of Farmers & Merch. Sav. Bank, 202 Iowa 859; Leach v. Sanborn State Bank, 203 Iowa 401; Leach v. Iowa State Bank, 202 Iowa 887.

Even if we indulge in the presumption that the bank received the proceeds of the appellant’s property at or about'the time it was forwarded by the appellant to the Darrow bank, such a presumption is not conclusive, and may be rebutted by the receiver by proof that the fund had been dissipated, and that no part of it in any form ever came into his hands. Hanson v. Roush, 139 Iowa 58; Cable v. Iowa State Sav. Bank, 197 Iowa 393; City of New Hampton v. Leach, 201 Iowa 316. The record abundantly establishes that, if the proceeds of the note were ever received by the bank, they were wholly dissipated before the appointment of the receiver. See Andrew v. Darrow Tr. & Sav. Bank, 204 Iowa 870. We may appropriately paraphrase what we said in First State Bank v. Oelke, supra. It would be the rankest fiction, in this ease, to say that the appellant has proven by any evidence that the proceeds of its note ever reached the hands of the receiver as an increase of the assets of the Darrow bank. No one can read the record without becoming thoroughly satisfied that the procéeds of appellant’s note were appropriated by the president, Kolthoff, to his own personal use and benefit. In said casé we said:

“It is the settled rule of our cases that a preference will not be allowed unless it be found that the fund has increased the present assets of the bank and that it may be taken therefrom without impairment of the rights of creditors.”

In the instant case, the record fails to establish a right on the part of the appellant to be allowed a preference for the amount of its claim against the funds in the hands of the receiver. Appéllant is, however, entitled to have its claim established as that of a general creditor of said bank. The court erred in denying such relief to the appellant. The decree of the- trial court will be modified, and the appellant’s claim will be established as that . of a general creditor of said bank. Otherwise, the decree will be affirmed. The costs in this case will be taxed two thirds to the appellant and one third to the appellee. — Modified and affirmed.

Stevens, C. J., and Evans, Kindig, and Wagner, JJ., concur.  