
    HALL v. SULLIVAN.
    No. 16715
    Opinion Filed June 8, 1926.
    Rehearing Denied Feb. 15, 1927.
    1. Banks and Banking — Collections—Helar tions Created — Insolvency of (Collecting Bank.
    A state bank which receives collection items forwarded by holders is the agent of the forwarder, and if the coUleotions are made in cash and remittances of proceeds mia'de by cashier’s checks, a trust is thereby created which the holders of such cheeks may enforce against a receiver or' the Bank Commissioner who takes charge of the collecting hank as insolvent before such cashier’s cheeks are paid.
    2. Same — Effect (of Collection Items Being Checks oh) Failing /Bank.
    But where such collection items consist of checks drawn on the collecting bank, which said bank collects merely by1 charging same to the individual deposit of the drawer, no actual addition being made to the general funds of the bank, no trust relatioto is created which will authorize recovery against the receiver or Bank Commissioner in the absence of necessary allegation's in the petition showing that at the time said collections were so made the actual cash on hand in the insolvent hank was equal toi or in excess of. the 'collections so handled.
    (Syllabus by Logsdon, C.)
    Commissioners’ Opinion, Division No. 1.
    Error from District Count, Carter County ' Asa E. Walden, Judge.
    Action toy C. P. Hall against R. L. Sullivan, liquidating .agent of Security State Bank of Healdton, to recover the sum of $846,'al-leged to be a trust fund. From an order-sustaining a general demurrer to plaintiff’s petition and from a judgment dismissing the action, plaintiff brings error.
    Affirmed.
    This action was commenced December 39 1924, by plaintiff filing in the district «rart of Carter county his petition against the defendant wherein it was alleged, in substance, that on certain dates stated in the petition plaintiff issued six certain checks on the Ser curity State Bank of Healdton in which plaintiff was a depositor, salid checks being dai-ed, respectively, January 9, 11, la, 14, and 16, 1924, and aggregating the sum oí $846; that said checks were drawn and issued by plaintiff against his account in said bank in payment of certain matured bills owing by him and were :n due course presented by the payee thereof to' said Security State Bank for payment, and, that each and all of said checks were by said Security State Bank marked paid and were charged to the account of plaintiff; that said checks so issued by plaintiff were presented to the Security State Bank for payment through corresponding banks in which the paj ees of said cheeks had deposited the same for eol-tleetton. but +hat instead of forwarding the cash in payment of said checks after the same -had -been charged to plaintiffs account the Security State Bank issued its cashier’s checks in payment thereof and forwarded the same instead of the -cash to the corresponding banks through which said checks had been sent; that -before said cashier’s checks so issired by the Security State Bank could be presented in due course of business said Security State Bank was taken in charge by the State Bank 'Commissioner as an insolvent 'bank and the defendant, R. L. Sullivan, was placed in charge thereof as liquidating agent; that when said cashier’s cheeks so issued by the Security State Bank were presented in due course of business, each and all of them were dishonored and payment refused because rf the insolvency ■of the Security State Bank; that thereupon this plaintiff was required to and did pay to his creditors holding said cashier’s cheeks the amounts represented thereby in the total sum of $846, and thereupon became subro-gated to all c-f -the rights ;and remedies of the original holders of said cashier’s cheeks; that by reason of the checks drawn by plaintiff on his aecctmt in said bank having been marked paid and charged to plaintiff’s account the amount thereof in the sum of $846 of the assets of said Security State Bank immediately became a trust fund for the payment of said creditors of plaintiff, and that when the defendant took charge of Said Security State Balde as liquidating agent he took the aosots of »°id bank sub-.iect to said trust, and that the said sum of $846 remains a trust fund in the bands of said defendant as liquidating agent: that plaintiff is entitled to recover the same with interest thereon at the rate of 6 per cent, per annum from January 24. 1924.
    To the petition of plaintiff the defendant interposed a general demurrer, and on July 10. 1925. islfter a hearing thereon, the trial court entered its ofcder sustaining this demurrer to the petition of ■ plaintiff. Thereupon -plaintiff elected to stand upon ms petition, and the court entered judgment dis-missiwg the action. To reverse this order and judgment of the trial court, this proceeding is prosecuted by petition in error ano transcript of tlie record.
    Champion, Champion & George, for plaintiff in error.
    Sigler & Jackson, for defendant in erroi.
   Opinion by

LOGSDON, C.

Two proper tions are presented and argued in the briefs in this edurt and are stated in (he brief of plaintiff as follows:

“First. Can the plaintiff maintain this action against the defendant, R. L. Sullivan, as liquidating agent of the Security State Bank -of Healdt-on, Okla., or is the plain-tiff’s cause of action one against the state and, therefore, not maintainable without the state’s consent?
“Second. Does the plaintiff’s peti’ion set forth facts sufficient to constitute a cause of action against the defendant and entine the plaintiff to a payment of this ela’m in full?”

It is evident that the second of these propositions includes and comprehends the firs’-, for, unless the second can be sustained, the first is wholly immaterial!. Thus, an action which invades and interferes with the exclusive jurisdiction and control of the State Rank Commissioner in his administration of the assets of an insolvent bank for the benefit of its general creditors is, in effect, a suit against the state and may not be maintained except by consent of the state. State v. Norman, 86 Okla. 36, 206 Pac. 523; State ex rel. v. Quigley, 93 Okla. 296. 220 Pac. 918. Recovery cf a trust fund, however, is ndt an interference with such jurisdiction and control, and is not a suit against tup state, because trust funds are not assets in the hands of the Bank Commissioner. Lawson, Receiver, v. Warren, 34 Okla. 94. 124 Pac. 46: Briscoe v. Hamer, 50 Okla. 281. 150 Pac. 1101.

Therefore, the first and primary question here involved is whether the petition of plaintiff states 'acts sufficient, as a matter of law, to show that the funds sought to be recovered constituted trust funds in the hands of the Bank Commissioner, through his liquidating agent, and were not a part of the aissets of the failed bank. Since t«u> judgment of the trial court is based upon its order sustaining a general demurrer to plaintiff’s petiticta and upon plaintiff’s election not to plead further, it follows that all facts well pleaded in the petition are admitted and it becomes a question of law whether those facts show the existence of a trusti fund for which plaintiff is entitled to maintain this action.

It is alleged that plaintiff was a depositor in the Security State Bank amd that the checks here involved were drawn against that deposit. It is further alleged that his deposit was at all times ample to cover the total amount of these checks, and that said checks were in fact charged against said deposit, thus reducing the amount thereof in a sum corresponding to the total of said cheeks. Plaintiff alleges that he was thereafter required to, and did, pay to the respective holders of said checks the respective amounts of the cashier’s checks issued as remittances to cover said several collections, and that he is entitled to be subrogated to the rights of such holders as against the Security State Bank and its liquidating agent.

Admitting the right of subrogation, the question is: What were the rights of the original holders of these cheeks which plaintiff acquired by assignment? Plaintiff epitomizes his contention in the following lan-' guage at page 33 of his brief:

“We appreciate the fade that there are some conflicting decisions as to whether dr not such facts constitute a trust relation, giving to the payees of the checks a preference right in the distribution of the moneys coming into the hands of the liquidating1 officer after insolvency, or whether the same constitutes a1 mere rotation of debtor and creditor, but we believe that the weight of authority, both in numbers and in reasoning, supports our position that a trust relation is created and that the bank on which checks were drawn acts as -the agent of the payees dr forwarding bankis of the checks, and holds the funds after the payment in trust for the use and benefit of the payees, and upon insolvency the funds pass as a trust fund into the hands of a receiver of such inso-lvenl bank. ”

Plaintiff alleged that all of the checks involved were sent by him to the payees named therein and were by such holders deposited for collection in their respective banks of deposit, such collecting banks forwarding same to the ’Security State Bank “for payment and remittance.” Upon such a state of facts the law applicable is thus stated in 3 B. O. L., p. 636, sec. 265:

“The general rule is that the title to commercial paper received for collection by a bank and forwarded to its correspondent in the usual course of business does not vest in such correspondent. The relation between the two banks, as between the depositor and the forwarding bank, is that of principal and agent merely. The correspondent bank receives such paper as an agent for collection, and the title does nob pass. When, however, the paper has once been collected by the correspondent bank, and it has received the proceeds therefor, the relation between the remitting bank -and itself _is changed from that of principal and agent to that of debtor and creditor, and title ’to such proceeds will, in the absence of an agreement ¡to the -contrary, vest in the correspondent bank. The banks are presumed to contract in view of -the well-known and established custom of banks, when acting as collecting agents feir other banks,> or, incmed, for 'any customer, -to put all collections made by them into the general fund of the bank, unless directed to make of them -a special deposit, and use them from hour u hour and from day toS day in the transaction of their current business. Such a presumption is not, however, a rule of law which cannot be overcome by an express agreement of the panties to the -contrary, -and in any event if, before receiving the proceeds of paper sent for colleetich, the correspondent bank becomes insolvent, it cannot thereafter obtain title to the process (-proceeds).”

In section 268, ib., it is further saia.

“Where a bank improperly mingles the proceeds of a collection -with its general funds, to enable the enstofmer to demand payment in preference to general creditors it is necessary that the proceeds be traced into the hands of the receiver according to the rules prevailing in the particular jurisdiction as to tracing trust funds. The decisions in the several jurisdictions are not in accord as1 to the degree of certainty with which such pro*-ceeds must -be traced. According to the present prevailing doctrine the identical proceeds need not be braced, ib 'being sufficient to show that the assets in the hands of the receiver were necessarily increased by the commingling of the proceeds with the general funds iof the bank. "And it has been held that, where after the commingling the bank makes disbursements from the general mass, such disbursements will be deemed to have been taken frota the funds properly belonging to the bank, and the unexpended balance will be impressed with a trust -in favor of the person for whom the collection was made. On the other hand, where disbursements are made by the bank from the general mass, the general assets of the hank are not available as a trust fund to satisfy ¡the demands of the person for whom the collection was made. So, also, where the collection is made by charging the amount €o 'the account of the debtor who is a depositor in the bank, the a'ssets ctf the bank .are not augmented thereby, since no money passes to the insolvent bank and rhe customer has no .preferential claim on the assets in the hands of the receiver. Where collections have been made for several customers and the proceeds improperly have been commingled with the 'general funds of the bank, and the funds winch .pass into the Rands of the receiver are insufficient to satisfy all their demands, such customers should share pro rata in the distribution.

Plaintiff did not allege in his petition the amount of the general funds oi? the bank- on hand when the several checks were presen ed, or that said general funds were sufficient to pay said cheeks. He merely alleged that his individual deposit was sufficient. In Bolles’ Modern Law of Banking, vol. 2, ch. 17, sec. 8, on the subject of collections, the author says:

“As oa'sh only can be received in payment the insolvency of a hank before receiving it leaves the collection incomplete. In like manner, if a collecting bank receives a check on itself in payment of paper received for collection, which is credited (charged) to the maker, and a draft is sent to the sending bank in payment and never paid by reason of the drawer’s failure, the collection is not complete. * * * It is a fraud ior a drawee •insolvent bank to which a check is sent fo>r collection and cannot pay, to charge it agamst the maker .as paid and send a draft to the other bank in payment. Consequently, failing to collect the draft, the owner of the check, who has not been negligent in any way about its collection, can sue the maker for tbe amount as though he had never received .anything from him.”

If the general funds of the bank, which included plaintiff’s individual deposit, had been so depleted at the time of the presentment of the six checks for payment that the bank was unable to pay the same in cash, the charging of same to plaintiff's account and the issuance by the hank of its wctrthless cashier’s checks to cover the remittances clearly did not constitute a payment of the six checks. The collection was not complete. No trust fund had been created for payment of the cashier’s checks. In the absence of an allegation showing sufficient general funds in the bank at the time the six checks were presented to have paid the same in cash, the trial court could not, and this court may noit, indulge a presumption to that effect. In the absence of a showing that such was the fact, there is nothing upon which a trust can be based. This is forcibly illustrated by three of tbe cases cited and relied upon by plaintiff in his brief.

The cases of Goodyear Tire & Rubber Co. v. Hanover State Bank et al. (Kan.) 204 Pac. 992 and Kesl et al. v. Hanover State Bank et al. (Kan.) 204 Pac. 994. are companion cases and arose out of the same bank failure. In the first of these .cases a draft for $1,-364.50 was the collection item involved, and in the second of these cases three items. one for $487.20, .another fo(r $6.84, and a third for $612.90 were involved. The cash on hand in the general fund of ihe Hanover Bank at the time these collection items were received amounted to $6,971.95, while the total of these- collection items was $2,-471.44. The collections were made as in the instant case by charging the various amounts no the individual deposits of the debtors in that bank and remittances were made to cover same by cashier’s check, as in the instant case. The Kansas court held in these cases that this created a trust relation and that the holders of the cashier’s checks issued by the bank to cover these collections were preferred claimants against tbe bank in the hands of its receiver.

In Hawaiian Pineapple Co., Ltd., v. Browne (Mont.) 220 Pac. 1114, also cited and relied upon by plaintiff, the amount of the collection item was $4,671.28, and ic was sholwn that between the time when the collection item was received aria collected by the bank and the date of its closing >che lowest sum on hand in the general lunds of the bank was $1,801.62. The court held that a trust was created in the general assets of the bank to the extent of the lowest balance of $1,801.62. upon the theory that if the amount of cash on hand in the bank at the time of making the collection by charging same to a depositor’s account was sufficient to pay the claim of $4,671.28, the same was thereafter dissipated M the lowest amount remaining in the bank at any time between collection and remittance, and that if any larger balance existed during this period of time it must have been caused by deposits made by others which came into the bank’s hands and upon which the holder of the preferred claim could have no lien.

Another ease cited and relied on by plaintiff is Federal Reserve Bank of Richmond v. Peters et al. (Va.) 123 S. E. 379, but an examination of that case discloses that it is not in point nor applicable to the facts here involved, for the reason that it is shown in that case that the Federal Reserve Bank had an express agreement with the Princ.p Edward-Lunenbei'g County Bank, which became the insolvent bank, by ¡which all cheeks for collection sent by the Federal Reserve Bank to it were to be sent direct by mail and the proceeds of such collections were to be shipped by the ¡collecting bank in currency or other money direct to the Federal Reserve Bank. Upton the collectiota item involved in that case the Prince Edward-Lunenberg. County Bank violated this agreement and made its remittance to the Federal Reserve Bank by draft on the Bank or Commerce & Trusts. It was held in that case that the funds collected under the agreement between the two banks .constituted a trust fund which the Federal Reserve Biank was entitled co recover from the receiver otf the insolvent collecting bank.

Note. — See 7 O. J. p. 627 §301 (Anno) ; 3 R. O. L. p. 636; 1 R. Cl L. Supp. p. 869; 4 R. O. L. Supp. p. 210.

Because there, is an entire absence of necessary allegations in plaintiff’s petition to show the existence of a state of facts which would result in icreacing a trust relation between the Security State Bank and the holders of the cashier’s cheeks here involved, and based upon the legal principles announced in the authorities heretofore cited and quoted from, it must be concluded that plaintiff’s petition in the instant ease did not state facts sufficient to entitle him to maintain this action upon the theory of a trust relation. Having reached this conciusion upen the second proposition involved in this proceeding, it is unnecessary to pass upon or determine the first proposition stated.

Fair the reasons herein stated, the judgment of the trial court is in all things affirmed.

By the Court: It is so ordered.  