Union Stock Yards Bank v. Gillespie

delivered the opinion of the court.

On the 2.5th day of May, 1887, a decree was rendered in the Circuit Court of the United States for the Northern District of Illinois, in favor of appellees and against appellant, for $26,585.90. That decree is challenged by this appeal. Two questions are presented; one of right, the other of jurisdic

“ Kansas City, Mo., Oct. 3, ’85.

“-Union Stock Yard & Transit Co., Chicago, 111.:

“Please deliver to A. J. Gillespie & Co. four cars' cattle, consigned from Shelby & Pulkeeson to us via C., B. & Q. B. B.

“Mountjoy, White & Co.

Deliver above cattle to Bappal Sons.

“ A. J. Gillespie & Co.”

Endorsed on the back the following: “ Bappal, Sons & Co.”

The allegation of the bill is, that the Gillespies, complainants, were owners of these cattle; and the contention is, that the proof does not establish this allegation, but shows that the Gillespies were not owners, but simply loaners of money on the security of the cattle. In respect to this, the learned Circuit Judge ruled as follows : “ I hold that the -cattle belonged to the Gillespies, or that the Gillespies were entitled to control them so far as necessary to protect themselves for advancements made on the purchases.” This is a very accurate statement of the relations of the parties; and in equity the Gillespies may properly be. considered the owners. . They paid for the cattle; the orders for possession, equivalent to bills of sale, were in their name; they controlled the shipments; and until their money advanced and stipulated profits were received, they were equitably the owners and in control. The senior Bappal, or Bowen & Co., were agents to purchase, with -a stipulation for compensation for services, in the amount received exceeding a named sum.

Bappal, Sons & Co. were in the commission business — known to the bank to be in that business. They were not buyers and sellers, but factors —• agents to sell. Presumably, therefore, moneys deposited by them were the proceeds of cattle consigned to them for sale. Their business being known to the bank, such presumption goes with their deposits; and while not of itself notice, is a circumstance to compel inquiry on the part of the bank in respect to any particular deposit. We do not' mean to be understood as implying that a bank receiving deposits from one whom it knows to be in the com

•It is obvious from this account that the business of the Eappals was failing. ' The story of their failure was written by the officers of the bank on its books, and it knew all that such story told. It knew that it had, as hereafter disclosed, given credit to the Eappals with the Kansas City dealers. It

Further, as heretofore suggested, it appears that the assistant cashier of the Kansas City Stock Yards Bank wrote to the cashier of the Union Stock Yards National' Bank a letter of inquiry as to the financial standing, individual responsibility and nature of the business of Rappal, Sons & Co., to which this answer was returned:

“ Union Stock Yards National Bank, July 20, 1885.

“ P. Connelly, Esq., Assistant Cashier, Kansas City, Mo.

“Dear Sir: Your favor of the 17th instant received. Rappal, Sons & Co. are a firm in good standing, financially and otherwise. I don’t think they keep much ready money in the business, but F. J. Rappal owns large farms near Joliet, and is estimated worth $50,000 to $60,000. He is a man of high character and has always had good credit, even before he had any means.

“Yours truly, G. E. Conrad, Cashier.”

This letter was shown to the Gillespies, and they were informed at the same time that the Kansas City bank had arrangements for notification by telegraph in case any draft was not paid. The effect of this letter was to encourage confidence in the Rappals, whatever may have been the motive of the defendant bank; and, in this respect, it is fair to say that there is no evidence to justify the inference that it was known to be inaccurate or intentionally misleading; but here, as often elsewhere, results rather than motives .are significant as to determining liability. Again, it will be noticed that the Gillespies were advised that non-payment of any draft would be promptly communicated by telegraph. That was in fact

Summing up these various facts, it may be observed that the bank knew that the business of the Eappals was a failing one; that, instead of making money, they were gradually going deeper and deeper into debt. It knew that the Eappals were not buyers, but simply consignees and factors; and that the moneys received by them on account of sales, of right belonged to their consignors and principals. It knew from the draft received that a shipment had been made to the Eappals. It knew that it had failed to give notice of the nonpayment of the first and smaller draft, and so had put it out of the power 'of the consignors to protect themselves against the subsequent misconduct of the consignees and factors. It knew, or was chargeable with the knowledge of the fact, that the consignors were confiding in the consignees and factors on the strength of the representations it had made. Upon nonpayment of the first and smaller draft, it knew that it was in a position to easily acquire knowledge of the exact facts; and with its means of knowledge it remained inactive and silent. With all these matters resting in actual or imputable knowledge, it accepts from the Eappals, consignees and factors, the proceeds of the sale of cattle consigned to them by the Gillespies. Can it be that it is not held to know that it was taking from the Eappals the proceeds of complainants’ property consigned to them for sale, to discharge their debt to it ? While the obligation of a factor to his principal is not a debt created by one acting in a fiduciary capacity, within the meaning of the bankrupt law, as was adjudged in Chapman v. Forsyth, 2 How. 202 , and Hennequin v. Clews, 111 U. S. 676 , the question here is not as to the character of the obligation of factor to principal, but as to the liability of one who takes from a factor, in payment of his debt, moneys which he knows equitably belong to that factor’s consignor and principal. Justice forbids the upholding of such a transaction, and demands that

We are met with the proposition that equity ought not to interfere when the law furnishes a remedy; that when a.bank has money in its possession which, in fact, belongs to a third party, received from whatever source it may be, an action at law will lie; and that, therefore, no case for equitable cognizance is presented. But this latter proposition has some limitations. It may be true if the full legal title to the moneys is in such third patty; but it is. not true when his title is equitable rather than legal; and the right of these complainants as against the bank, to the moneys deposited by their factor, is equitable. True, the obligation of a factor to his principal for moneys received on the sale of property consigned to him for sale is not a debt created by one acting in a fiduciary capacity, within' the meaning of the bankrupt law, but. it does not follow that no fiduciary obligation inheres in such debt. The case of Chapman v. Forsyth, 2 How. 202 , turned not so .much on the existence of a trust obligation as on the question as to what trust obligations were intended by the bankrupt act. The court observes: “ The cases enumerated, ‘ the defalcation of a public officer,’ 'executor,’ ‘ administrator,’ ‘guardian,’ or ‘trustee,’ are not cases of implied but special trusts, and the ‘other fiduciary capacity’'mentioned must mean the same class of trusts. The act speaks of technical trusts, and not those which the law implies from the contract. A factor is not, therefore, within the act.” It cannot be doubted that an element of a fiduciary nature enters into the obligation of the factor — an element different from that

The case in 104 U. S., with the authorities cited in it, is decisive of this. The legal title to these moneys deposited was in the Bappals; so it was in that case in Dillon. The beneficial ownership is in the Gillespies; there it was in the insurance company. The circumstances surrounding the deposits, and the relations between the depositor and the bank," were such as to impart notice to the bank that the beneficial ownership was outside of the legal title. With that notice, it had no right to appropriate the deposits to pay the obligations of the depositor to the bank, but it was properly, adjudged liable in a suit in equity, and in that alone, to the claims of

We conclude, therefore, that the proper forum was sought, and the decree was right; and it is

Affirmed.