Scullin Steel Co. v. North American Co.

Eighth Circuit

Scullin Steel Co. v. North American Co.

255 F. 945, 167 C.C.A. 237, 1919 U.S. App. LEXIS 1549

CourtCourt of Appeals for the Eighth Circuit

DecidedFebruary 4, 1919

DocketNo. 5060

StatusPublished

Cited by3 cases

This text of 255 F. 945 (Scullin Steel Co. v. North American Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Scullin Steel Co. v. North American Co., 255 F. 945, 167 C.C.A. 237, 1919 U.S. App. LEXIS 1549 (8th Cir. 1919).

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Opinion

TRIEBER, District Judge

(after stating the facts as above). On behalf of the appellant it is claimed that as it paid to the agent of the railroad company $4,500 more than its just and proper freight charges, the railroad company became a trustee of the fund, on the ground that, where one has obtained money of another which does not equitably belong to him, through fraud of a third person, a constructive trust [947]*947arises in favor of him who is equitably entitled thereto; that this $4,-500 actually went into the treasury of the railroad company, and at no time was its cash reduced below that sum before its property was placed in the hands of the receivers; and that a larger sum was turned over hv the railroad company to the receivers. Therefore, it is contended, appellant is equitably entitled to have that money paid back to him by the receiver in preference to the claims of the mortgagees and other lien creditors.

[1,2] As stated by the learned trial judge in his opinion:

“TMs suit is a suit in equity, and the intervener is entitled to preference in payment only if it has established the fact that in equity and good conscience its claim ought to be paid in preference to those of the other creditors.”

And in Williams v. Jackson, 107 U. S. 478, 484, 2 Sup. Ct. 814, 819 (27 L. Ed. 529), it was held that “when the equities are equal the legal title must prevail.”

The facts show that, although the money of which appellant was defrauded by reason of the fraudulent acts of Betts, the agent of the railroad company, and Dunn, its freight traffic roan, the railroad company’s funds were in no wise swelled, nor was it enriched one penny, as the amount paid over by its agent was only what was actually due from him for freight bills collected as agent of the railroad. The overpayments made by the checks of Dunn were deducted with the moneys collected by Betts from other shippers and then divided between them; therefore the railroad company received no benefit from any of the money of which appellant was defrauded. In Wilson v. Wall, 73 U. S. (6 Wall) 83, 91 (18 L. Ed. 727), it was held:

“A chancellor will not bo astute to charge a constructive trust upon one wlio has acted honestly and. paid a full and fair consideration without notice or knowledge.”

And as held by this court in Empire State Surety Co. v. Carroll County, 194 Fed. 593, 604, 114 C. C. A. 435, 446:

“It is Indispensable to the maintenance by a cestui quo trust of a claim to preferential payment by a receiver out of the proceeds of the estate of an insolvent that clear proof be made that the trust property or its proceeds went into a specific fund or into a specific identified piece of property which came to the hands of tile receiver, and then the claim can be sustained to that fund or property only and only to the extent that the trust property or its proceeds went into it. It is not sufficient to prove that tho trust property or its proceeds went into the general assets of the insolvent estate and increased the amount and the value thereof which came to the hands of the receiver”— followed in State Bank v. Alva Security Bank, 232 Fed. 847, 147 C. C. A. 41.

[3] It is not claimed that any of the officers of the railway company had notice of the frauds, but it is earnestly insisted that the railway company is chargeable with notice of the fraud, as the knowledge of its agent Betts was its knowledge, and also that, as the checks of the appellant showed that they were for freight charges, the railway company, by comparing them with the freight bills due from the steel company, would have known that the checks were for excessive sums.

As to the knowledge of the agent being the knowledge of the com[948]*948pany, that is a presumption which the law will conclusively indulge in, for the reason that it will presume that the agent informs his principal of that which his duty and the interest of his principal require him to communicate. But this presumption does not arise, cannot arise, when the agent is engaged in a scheme to defraud his principal, or desires to subserve simply his own personal ends. “In such cases,” Mr. Justice Harlan, delivering the opinion of the Court in American Surety Co. v. Pauly, 170 U. S. 133, 156, 18 Sup. Ct. 552, 561 (42 L. Ed. 977), said, “the principal is not bound by the acts or declarations of the agent unless it be proved that he had at the time actual notice' of them, or having received notice of them, failed to disavow what was assumed to be said and done in his behalf.” Judge Eacombe, who delivered the opinion of the United States Circuit Court of Appeals for the Second Circuit in that case (72 Fed. 470, 483, 18 C. C. A. 644, 656), said on that subject:

“When two officers of a corporation have entered into a scheme to purloin the money of the corporation for the benefit of one of them, in pursuance of which scheme it becomes necessary to make false representations to a third person, ostensibly for the .bank, but in reality to consummate said scheme, and for the benefit of the conspirators, and not in the line of ordinary routine business of such officers, and without express authority — the corporation being ignorant of the fraud — the officers are not, in thus consummating such theft, the agents of the corporation.”

To the same effect is Interstate Nat. Bank v. Yates Center Nat. Bank, 245 Fed. 294, 157 C. C. A. 486. Therefore the knowledge of its agent is no more chargeable to the railway than the knowledge of appellant’s agent, Dunn, is chargeable to it.

[4] Nor is the railroad company chargeable with notice by reason of the fact that ’by examining its books it could have ascertained that the appellant’s checks were in excess- of the amounts due. The law does not place such a burden on it. If every time a check, purporting to be -in payment of some bill of a large number of bills, is received, the party to whom it is given is required to compare the amount with the bills which accrue daily, it would take a great deal of valuable time to do so, and then would probably be of no real benefit in a case like this; for, as appears from the record, the appellant received large shipments almost daily, and only made payments as they were delivered.

[5] But, aside frorrp this, the finding of facts made by the special master is to the effect that these checks were not turned over by the agent to the railway company, but were deposited by him in the bank to the credit of the railway company, which, when notified by the bank that a certain sum had been placed to its credit by its agent, Betts, would credit him therewith. So the railway company would never know whether these deposits were in cash or checks, and, if checks, whose checks.

In the instant case the equities are much stronger in favor of the receivers than of appellant.

The order denying appellant the preferential right for this sum was right and is affirmed.

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TRIEBER, District Judge

(after stating the facts as above). On behalf of the appellant it is claimed that as it paid to the agent of the railroad company $4,500 more than its just and proper freight charges, the railroad company became a trustee of the fund, on the ground that, where one has obtained money of another which does not equitably belong to him, through fraud of a third person, a constructive trust [947]*947arises in favor of him who is equitably entitled thereto; that this $4,-500 actually went into the treasury of the railroad company, and at no time was its cash reduced below that sum before its property was placed in the hands of the receivers; and that a larger sum was turned over hv the railroad company to the receivers. Therefore, it is contended, appellant is equitably entitled to have that money paid back to him by the receiver in preference to the claims of the mortgagees and other lien creditors.

[1,2] As stated by the learned trial judge in his opinion:

“TMs suit is a suit in equity, and the intervener is entitled to preference in payment only if it has established the fact that in equity and good conscience its claim ought to be paid in preference to those of the other creditors.”

And in Williams v. Jackson, 107 U. S. 478, 484, 2 Sup. Ct. 814, 819 (27 L. Ed. 529), it was held that “when the equities are equal the legal title must prevail.”

The facts show that, although the money of which appellant was defrauded by reason of the fraudulent acts of Betts, the agent of the railroad company, and Dunn, its freight traffic roan, the railroad company’s funds were in no wise swelled, nor was it enriched one penny, as the amount paid over by its agent was only what was actually due from him for freight bills collected as agent of the railroad. The overpayments made by the checks of Dunn were deducted with the moneys collected by Betts from other shippers and then divided between them; therefore the railroad company received no benefit from any of the money of which appellant was defrauded. In Wilson v. Wall, 73 U. S. (6 Wall) 83, 91 (18 L. Ed. 727), it was held:

“A chancellor will not bo astute to charge a constructive trust upon one wlio has acted honestly and. paid a full and fair consideration without notice or knowledge.”

And as held by this court in Empire State Surety Co. v. Carroll County, 194 Fed. 593, 604, 114 C. C. A. 435, 446:

“It is Indispensable to the maintenance by a cestui quo trust of a claim to preferential payment by a receiver out of the proceeds of the estate of an insolvent that clear proof be made that the trust property or its proceeds went into a specific fund or into a specific identified piece of property which came to the hands of tile receiver, and then the claim can be sustained to that fund or property only and only to the extent that the trust property or its proceeds went into it. It is not sufficient to prove that tho trust property or its proceeds went into the general assets of the insolvent estate and increased the amount and the value thereof which came to the hands of the receiver”— followed in State Bank v. Alva Security Bank, 232 Fed. 847, 147 C. C. A. 41.

[3] It is not claimed that any of the officers of the railway company had notice of the frauds, but it is earnestly insisted that the railway company is chargeable with notice of the fraud, as the knowledge of its agent Betts was its knowledge, and also that, as the checks of the appellant showed that they were for freight charges, the railway company, by comparing them with the freight bills due from the steel company, would have known that the checks were for excessive sums.

As to the knowledge of the agent being the knowledge of the com[948]*948pany, that is a presumption which the law will conclusively indulge in, for the reason that it will presume that the agent informs his principal of that which his duty and the interest of his principal require him to communicate. But this presumption does not arise, cannot arise, when the agent is engaged in a scheme to defraud his principal, or desires to subserve simply his own personal ends. “In such cases,” Mr. Justice Harlan, delivering the opinion of the Court in American Surety Co. v. Pauly, 170 U. S. 133, 156, 18 Sup. Ct. 552, 561 (42 L. Ed. 977), said, “the principal is not bound by the acts or declarations of the agent unless it be proved that he had at the time actual notice' of them, or having received notice of them, failed to disavow what was assumed to be said and done in his behalf.” Judge Eacombe, who delivered the opinion of the United States Circuit Court of Appeals for the Second Circuit in that case (72 Fed. 470, 483, 18 C. C. A. 644, 656), said on that subject:

“When two officers of a corporation have entered into a scheme to purloin the money of the corporation for the benefit of one of them, in pursuance of which scheme it becomes necessary to make false representations to a third person, ostensibly for the .bank, but in reality to consummate said scheme, and for the benefit of the conspirators, and not in the line of ordinary routine business of such officers, and without express authority — the corporation being ignorant of the fraud — the officers are not, in thus consummating such theft, the agents of the corporation.”

To the same effect is Interstate Nat. Bank v. Yates Center Nat. Bank, 245 Fed. 294, 157 C. C. A. 486. Therefore the knowledge of its agent is no more chargeable to the railway than the knowledge of appellant’s agent, Dunn, is chargeable to it.

[4] Nor is the railroad company chargeable with notice by reason of the fact that ’by examining its books it could have ascertained that the appellant’s checks were in excess- of the amounts due. The law does not place such a burden on it. If every time a check, purporting to be -in payment of some bill of a large number of bills, is received, the party to whom it is given is required to compare the amount with the bills which accrue daily, it would take a great deal of valuable time to do so, and then would probably be of no real benefit in a case like this; for, as appears from the record, the appellant received large shipments almost daily, and only made payments as they were delivered.

[5] But, aside frorrp this, the finding of facts made by the special master is to the effect that these checks were not turned over by the agent to the railway company, but were deposited by him in the bank to the credit of the railway company, which, when notified by the bank that a certain sum had been placed to its credit by its agent, Betts, would credit him therewith. So the railway company would never know whether these deposits were in cash or checks, and, if checks, whose checks.

In the instant case the equities are much stronger in favor of the receivers than of appellant.

The order denying appellant the preferential right for this sum was right and is affirmed.

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255 F. 945, 167 C.C.A. 237, 1919 U.S. App. LEXIS 1549, Counsel Stack Legal Research, https://law.counselstack.com/opinion/scullin-steel-co-v-north-american-co-ca8-1919.

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