rise, under the settled rule, to a constructive trust, and the bank thereby was charged from the beginning with the obligations of a trustee to safeguard the fund for the benefit of the infant child. Cuttell v. Fluent [8 Cir.], 51 F.2d 974; First National Bank of Forsyth, Montana, v. Fidelity & Deposit Co. of Maryland [9 Cir.], 48 F.2d 585; Allen v. United States [1 Cir.], 285 F. 678; United States Nat. Bank v. City of Centralia [9 Cir.], 240 F. 93; Board of Commissioners of Crawford County, Ohio, v. Strawn [6 Cir.], 157 F. 49, 15 L.R.A.,N.S., 1100."
Salter knew at the time the deposit was made that the payee of the check was an insane person. When he deposited the check in the bank, and accepted the deposit for the bank, he did so knowing that the insane person, the owner of the cash, was entitled under the law to have it safeguarded, kept and applied under court protection. I am of opinion that, if the element of augmentation of the Bank's assets had been present, these circumstances would have given rise to a resulting trust and that the bank would thereafter have been charged with the obligation of a trustee to sateguard the fund for the benefit of the insane person.
Under the modern rule, to trace the trust funds into the hands of the receiver it would only to necessary to show that the lowest level of cash in the vaults of the bank never fell below the amount claimed by the plaintiff. The complaint alleges that the funds of the Bank have at no time amounted to less than the sum represented by the check to Christine G. Clark. It would therefore be assumed as a matter of law that an amount of cash sufficient to cover the trust fund was set aside in the vaults of the bank and held for that purpose. Tucker v. Newcomb, supra. This doctrine of the "lowest balance" is recognized in most of the decisions of the United States Courts and its application to the instant case would serve to identify and earmark the fund in the hands of the Receiver.
The question remains whether an actual res ever existed, in the sense that the assets of the Bank were augmented by the deposit of the check in the Bank to the credit of the Association, as trustee for Christine G. Clark. If the law of Pennsylvania were to govern this case, as contended by the plaintiff, that question would also be affirmatively answered; for it is the settled law in Pennsylvania that the deposit of a check in a bank, even though the check be drawn on the bank receiving the deposit, is equivalent to the bank's cashing the check and receiving the cash back for deposit. Bryan v. First National Bank of McKees Rocks, 205 Pa. 7, 54 A. 480.
I cannot agree with this contention of the plaintiff. I am of opinion that the case of Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, is not authority for applying the law of Pennsylvania to this case. This proceeding is brought under the Federal statute governing the distribution of funds in the hands of the receiver of a closed national bank. 12 U.S.C.A. § 194. The Supreme Court has not extended the doctrine of Erie v. Tompkins beyond diversity cases. D.Oench, Duhme & Co. v. Federal Deposit Insurance Corporation, 62 S. Ct. 676, 86 L. Ed. , decided March 2, 1942 (concurring opinion of Mr. Justice Jackson). Therefore, we must look to the Federal decisions to determine what the law is on the question of augmentation of funds. From an examination of the Federal cases, I conclude that the settled rule in the Federal Courts is that even where the circumstances are such as to create a trust, and where the trust fund would otherwise be traceable into the hands of the receiver, it still must be shown, in order to decree priority of distribution, that the funds in the hands of the receiver have been directly aug mented by the presence of the trust property or its proceeds. The deposit here, which the plaintiffs seeks to recover as a trust fund in the hands of the receiver, was created by the Association's deposit in the Bank to the credit of itself as trustee for Christine G. Clark of its own check on its own deposit account in the Bank. This transaction under the Federal rule resulted in a mere shifting of credits which added nothing whatever to the assets of the Bank. There was therefore no augmentation of assets upon which a trust could be predicated. This distinction between the rule in cases where assets of the bank have been augmented and the rule in cases where they have not been augmented is clearly pointed out and discussed, with ample citation of authority, in the case of Swan v. Children's Home Society of West Virginia, 4 Cir., 1933, 67 F.2d 84, decided by the same Court which rendered the decision in the case of Tucker v. Newcomb, supra.
While the complaint alleges that no dividend has been received by plaintiff, whereas the receiver has distributed a dividend of 24% to the general creditors, it is clear that the sole reason for this failure is the plaintiff's claim of a preferred status. The dismissal of the present complaint will be without prejudice to plaintiff's right to participation in the distribution to general creditors.
Because of the lack of a showing, in the facts set forth in the complaint, that there was an augmentation of the bank's assets by the transaction complained of, the motion to dismiss the complaint must be sustained. An order may be entered in accordance with this opinion.
© 1992-2004 VersusLaw Inc.