Bank of Hickory v. McPherson

59 So. 934, 102 Miss. 852

• Court: Mississippi Supreme Court
• Decided: October 15, 1912
• Status: Published

Opinion

Cook, J.,

delivered the opinion of the court.

This case was appealed from the chancery court of Newton county from a decree overruling defendant’s demurrer to the original bill of complainant to settle the principles of law involved in the litigation. The bill of complaint sets up this state of facts: At a former term of the chancery court of Newton county, complainants petitioned the court to order the sale of certain lands, of which, they were tenants in common, for partition; that the prayer of the petition was granted by the conrt, and Gr. B. Harper, sheriff, was by the court appointed its commissioner to sell the land to the highest and best bidder for cash, and to report his sale at the next succeeding term of the court; that, in pursuance of said decree, Gr. B. Harper, sheriff and commissioner, after having complied with all the formalities precedent to the sale, sold the land to one O. S. McPherson for the sum of six hundred and eighty dollars; that the said McPherson paid the purchase money to G-. B. Harper, commissioner, by his personal check on Bay Springs Bank, the check being dated March 2, 1905, and payable to GL B. Harper, commissioner; that said check was deposited in the Bank of Hickory, appellant, and was indorsed ‘ ‘ GL B. Harper, commissioner,” an.d that the check passed through other banks in the course of collection, and was> finally paid by the Bay Springs Bank; that the appellant bank, well knowing that, the funds covered by the check were not the personal funds of GL B. Harper, and -although the check on its face gave notice to the bank that the funds were payable to Harper in his fiduciary character as commissioner, the bank nevertheless passed the six hundred and eighty dollars to the credit of the personal account of GL B. Harper, and permitted Harper, or his personal representative, to withdraw said money by his personal checks in payment of personal debts. The bill shows further that GL B. Harper departed this life before he had reported this sale of the land to the chancery court for confirmation; that the death of Harper and the sale were properly presented to the chancery court, and the court appointed S. M. Adams special commissioner to report said sale and make a deed to the purchaser. By the authority of the court, the special commissioner conveyed the land to O. S. McPherson, the purchaser at the sale made by GL B. Harper, commissioner, in consideration of the check drawn as above stated. Upon this state of facts, admitted by the demurrer, complainants prayed for a decree against the Bank of Hickory for the six hundred and eighty dollars and legal interest.

It will be seen that the relief sought is predicated upon the theory that the check, on its face, gave evidence of the character of the fund which it represented, and that the bank, in dealing with the money, was chargeable with notice that G. B. Harper could not use same except in his fiduciary capacity. The check was properly indorsed, “G. B. Harper, commissioner,” and it is the contention of appellees.that the money represented by it could not be paid to any one except npon the order of “Gr. B. Harper, commissioner.” The bill charges that the bank placed the funds to the credit of Gr. B. Harper and disbursed the same upon his personal checks, or upon the checks of his personal representative after his death.

Admitting all that appellees say in their bill of complaint, except its legal conclusions, appellant insists that the money paid by McPherson to Harper was not due or payable until the sale of the land was confirmed by the chancery court, and that the title to the money did not pass to the commissioner until after the sale had been approved by the court. This being true, it follows that Harper did not and could not deal with the check as commissioner, but merely collected the same and dealt with the proceeds in his personal capacity. This is the position of counsel representing that side of this controversy, and they cite a long line of decisions of this court to sustain their view.

It must be admitted that the money paid by McPherson did not inure to the owner of the land until the sale was confirmed, and that this is the well-settled law of this state cannot be questioned; nor do we entertain any doubt of the soundness of the doctrine so often announced by this court. We think, however, that the principle so decided in no way conflicts with the principle determinable of this case, and an examination of the authorities cited by appellant will, we believe, make it patent that the doctrine so universally adhered to may be used in support of the theory of appellees. It is not claimed that complainants in the original bill have any title to, or equity in, the fund, until after the confirmation of the sale; on the contrary, the confirmation of the sale and the conveyance of the land to the purchaser forms the basis for this suit, without which it may be admitted that the bill fails to disclose any grounds for equitable relief. All of the cases cited are to the effect that the commissioner and the owner of land sold by order of the chancery court do not obtain title to the purchase money before the court confirms the sale, and, without, discussing any of the decisions, we refer to the cases cited: State v. Cox, 62 Miss. 786; Fearing v. Shafner, 62 Miss. 791; Pool v. Ellis, 64 Miss. 563, 1 South. 725; Campe v. Saucier, 68 Miss. 278, 8 South. 846, 24 Am. St. Rep. 273; Also brook v. Eggleston, 69 Miss. 833, 13 South. 850; Maynard v. Cooke, 18 South. 375.

We come now to the consideration of the point we believe to be the real and only point upon which a proper interpretation of the rights and equities of the parties to the litigation must rest. We think the bill of complaint may be construed to charge actual knowledge in the bank of the fiduciary character of the fund handled by it, exclusive of the information conveyed by the form of the check, but we rest this decision upon the naked language of the check itself.

It is well settled by the decisions of this court, and is supported by all of the text-writers, as well as the Supreme Court of the United States, that “whenever a trustee has been guilty of a breach of trust, and has transferred the property, by sale or otherwise, to any third person, the cestui que trust has full and perfect right to follow such property into the hands of suoh third person unless he stands in the position of a bona fide purchaser for valuable consideration without notice; and if the trustee has invested the trust property, or its proceeds, in any other property into which it can be distinctly traced, the cestui que trust has his election either to follow the same into the new investment, or to hold the trustee personally liable for the breach of trust.” Isom v. First National Bank et al., 52 Miss. 915. In Armour v. Bank, 69 Miss. 705, 11 South. 29, the court says: “Bather we put it upon the proposition that, if there was a misappropriation of the trust fund by the bank, or if there was a beneficial participation in the misappropriation of the trust fund, after knowledge of the fact that Lamon held the money in a fiduciary capacity, and that the Armour Company was the real owner of it, then the bank was liable for her fund.”

Certain it is that Harper was not the owner of the check or the money after its collection, in his individual capacity, either before the confirmation of the sale of the land made by him by order of the chancery court, or, for that matter, after the confirmation of the sale; it follows, therefore, that the fund could not be taken by the creditors of Harper in payment of his debts, and it is equally certain that his bank could not place this fund to his individual credit, thus creating the relationship of debtor and creditor' between the bank and Harper, and thereby enabling him to misappropriate the money which he obtained in a fiduciary capacity. If the bank did this, with full notice of the fiduciary character of the funds, it is liable to the beneficiaries of the trust for the diversion of the funds.

In Davis v. Henderson, 25 Miss. 549, 59 Am. Dec. 229, the court held: “It is sufficient if enough appear upon the face of a bill of exchange to put a prudent man upon inquiry, before taking it, to make the bill valid in law. Held, that it is not necessary that a bill of exchange-should unequivocally disclose the name of the principal in order to exonerate the agent who executed it..... The word ‘agent,’ being attached to the drawer’s (II.) name and the bill to be charged to the drawee’s own agency, was at least sufficient to pnt a prudent man taking the bill from the drawee upon inquiry as to the precise terms of the contract' between the original parties.”

In Duchett v. Bank, 86 Md. 400, 38 Atl. 983, 39 L. R. A. 89, 63 Am. St. Rep. 513, the supreme court of Maryland discussed the facts of a case almost “on all fours” with this case, and the remarks of the learned judge rendering the opinion of the court are so clear and strong, and so aptly illustrate the question before us, we quote at some length from the opinion, and adopt this language as our own, viz.: ‘ ‘ The second, or Duckett check, in terms directed the cashier of the Mechanics’ Bank ‘to deposit’ the two thousand and twenty-four dollars, and thirty cents ‘to the credit of Henry W. Claggett, trustee.’ This was an explicit notification to the bank that Claggett was not the actual owner of the money. Bundy v. Monticello, 84 Ind. 119; 3 Am. & Eng. Ency. Law (2d Ed.), p. 832. It was an equally explicit instruction to-the bank not to place the funds to the credit of Claggett’s personal account. It was consequently more than a mere memorandum made for the convenience of the-drawer of the check. Knowing that the-money was not. Claggett’s, but that it was payableto him, and to be deposited to his credit as trustee, the bank had no authority to place it to his individual credit (American Exch. Nat. Bank v. Loretta Gold & S. Min. Co., 165 Ill. 109, 46 N. E. 202, 56 Am. St. Rep. 233); and, if loss ensued by reason of Claggett drawing the fund out by checks on his personal account, the bank is liable to make restitution to-the trust estate. The bank in the eye of the law, participated in the breach of trust which Claggett was guilty. In fact, the bank took the first step that ended in the spoliation of the trust. Its act in placing distinctly marked trust funds to the personal credit of Claggett was obviously wrongful, and it must bear the resulting consequences. It is no answer to say that had the bank obeyed tbe direction given to it; and had it opened an account in the name of Claggett as trustee, and credited that account with these funds, still Claggett could have withdrawn them on checks appropriately signed, and could then have misapplied the money without involving the bank in any liability. This is no answer, simply because what might have been done was not done.”

In this connection we also quote the following from the syllabus of Central Nat. Bank v. Connecticut Mutual Life Co., 104 U. S. 66, 26 L. Ed. 693, a case decided by the Supreme Court of the United States, viz.: “Although the relation between a bank and its depositor is that merely of debtor and creditor, if the money deposited belonged to a third person and was held by the depositor in a fiduciary capacity, its character is not changed by being placed to his credit in his bank account. The contract between the bank and the depositor is that the former will pay according to the checks of the latter, and, when drawn in proper form, the bank is bound to presume, in ease the account is kept in the name of the depositor as trustee or other fiduciary character, that the trustee is in the course of lawfully performing his duty and to honor them accordingly; but when, against such a bank account, the bank seeks to assert its lien as a banker for a personal obligation of the depositor, known to have been contracted for his private benefit, It must be held as having notice that the fund represented by the account is not the individual property of the depositor, if it is not shown to consist, in whole or in part, of funds held by him in a trust relation. ’ ’ This case illuminates the question now being discussed, and marks the course for banks to pursue in dealing with paper not belonging to the depositor, but held in trust by him. There is not a discordant note in the authorities, so far as we have discovered, upon the precise question involved in the present case.

Ford v. H. C. Brown et al., 114 Tenn. 467, 88 S. W. 1036, 1 L. R. A. (N. S.) 188, is directly in point, and here, as in that case, the check gave actual notice that it represented a trust fund, and obliged the bank to inquire into the right of the trustee to dispose of the fund.

Returning to the instant case, we find that Harper, technically speaking, did not take the check as commissioner; but, being commissioner, the purchaser of the land gave to him his check on the Bay Springs Bank for the amount at which he bid in the property, to be paid by Harper to the owner of the land when the sale was confirmed by the chancery court. Harper thus became a trustee of this fund, first, for McPherson, and, second, for the parties for whose benefit the money came into his hands. The money could not be taken by the creditors of Harper, nor could it be taken by the creditors of the ultimate beneficiaries nnti] after the judicial confirmation of the sale. There would be no dispute about the right of the appellee to impound this money so long as it remained in the possession of Harper, after the court confirmed the sale, and this could be done by garnishing the bank, or by a bill in equity against the bank of deposit of the fuud, if the actual money could be traced to the bank, or by a direct order of the court having jurisdiction of the partition proceedings directing Harper, or his bank of deposit, to pay the money to appellees.

Looking through mere forms to the substance, it appears that the check was payable to Harper as commissioner, which denoted to an ordinarily prudent person that Harper was acting in some sort of fiduciary capacity with reference to the money ordered to be paid to him by Bay Springs Bank, which information, if followed up, would have disclosed to the Bank of Hickory the actual status of. Harper with reference to the money. The Bay Springs Bank would have refused payment of the check if it had been indorsed “Geo. B. Harper,” and why? The answer is easy: Because the check was not made payable to- the order of George B. Harper, but to Geo. B. Harper, commissioner. This was manifest to the Bank of Hickory, and it was also perfectly manifest that, on the face of the paper, the money represented by the check did not belong to Greorge B. Harper.

Ignoring the danger signals, the bank of deposit credited what it was bound to know was trust funds to the personal account of Greo. B. Harper, and by its subsequent actions aided and abetted the trustee in an unlawful application of trust funds to the payment of his private debts. If Harper had survived, and a grand jury investigation had followed his failure to account for the trust funds, what would have been the result? 'The answer is obvious. Appellees, the beneficiaries of the fund, could have proceeded against Harper, if living, or, having traced the funds to appellant, taking the money with full notice, they can also proceed against the bank.

Affirmed.