Columbia Finance & Trust Co. v. First National Bank

76 S.W. 156, 116 Ky. 364, 1903 Ky. LEXIS 202

• Court: Court of Appeals of Kentucky
• Decided: October 7, 1903
• Status: Published

Opinion

Opinion or the court by

JUDGE HOBSON

Reversing.

Henry L’. Stone and Watson A. Suddutb, two members of tbe Louisville bar, formed a partnership in the year 1889 for the practice of their profession under the firm name of Stone & Sudduth. The partnership continued for about ten years. The firm was employed by the Richmond & Irvine Construction Company in the case of the Central Trust Company against the Richmond, Nicholasville, Irvine & Beattyville Railroad Company, in the United States Circuit Court for the District of Kentucky. While the suit was undetermined, on November 1, 1895, Sudduth borrowed of appellant, the Columbia Finance & Trust Company, $3,000, for which he executed to it his note, and to secure 'the note assigned to it in writing enough of his portion of his fee in that case to pay the note. Stone consented in writing to the assignment of one-half the fee to the trust company. On August 3, 1898, Sudduth, to secure his individual pre existing debt and additional advances, assigned' to appellee, the First National Bank, $2,500 of the amount due him out of the firm fees in the case referred to, .and on February 20, 1899, he, to secure his individual pre-existing debt and other advances assigned to it the further sum of $5,000 of the amount due him out of the firm fees in that case. These assignments were made without the knowledge or consent of Stone, but on April 8, 1899, notice thereof was given by the bank to the construction company. On April 18, 1899, Stone borrowed of the trust company $4,000, executing his note therefor, and to secure it an assignment of his one-half interest in the fees of Stone & Sudduth above referred to; also his half of their fees in behalf of U F. Mann in that action; and to this arrangement Sudduth, in writing, consented. Notice was given by the trust company to the construction company on May 8, 1899, of the assignments to it by Sudduth and Stone of the fees referred to. The firm of Stone & Sudduth was dissolved on August 14, 1899. After this, on September 20, 1899, there was paid to the Richmond & Irvine Construetion Company and its attorneys, Stone & Sudduth, the sum of $32,131.69, which sum included the fees of the attorneys in the action mentioned, and, there being a disagreement between the attorneys and their client as to the amount of their fees, the money was deposited in the First National Bank to the credit, of B. H. .Young, president, W. A. Sudduth, and H. L. Stone, with the understanding that the fees were embraced in the deposit, and that no part of the money was to be paid out except on checks signed by the three — Young, Stone, and Sudduth — Young being the president of the construction company. After this, on October 9, 1899, Sudduth authorized the bank to appropriate $7,500 of the amount to the satisfaction of the assignments he had 'made to the bank. Stone knew nothing of it, and Young, who was informed of it by the cashier, said that he had no right to do this; that the money was placed there subject to the order of Stone, Sudduth, and himself. The cashier said that he had made a memorandum check, and had appropriated the money under the assignment with the agreement of Sudduth. Young’ replied that he could do wh^t he pleased with Sudduth’s money, but that he could not take the company’s money, and it was then agreed between Young and the cashier that, if the fees of the attorneys were fixed at less than $7,500, the bank would refund to the construction company the amount so overdrawn. While matters thus stood, Sudduth died in November, 1899, and in December the attorneys’ fees were fixed at $6,725.86, and thereupon the bank returned to the credit of the fund $774.11, this being the amount of'excess appropriated by it over and above, the fees. The trust company did -not know at that time anything of these proceedings between the bank and Sudduth, nor did Stone. On January 3, 1900, a check was delivered to the trust company on the bank for $3,362.93, being Stone’s one-balf of the fees; also a check for $3,236, to be paid out of Sudduth’s portion of the fees. These checks were signed by Young as president, H. L. Stone, and the executor of Sudduth. They were presented to the bank, and, payment being refused, this action was brought to recover on them. ¶ After a voluminous preparation of the case, the circuit court entered judgment in favor of the bank, and the trust company appeals.

The grounds of the judgment, as stated by the learned circuit judge, seems to be as follows: (1) The bank has possession and ownership of the money in controversy, having appropriated it by the direction of Sudduth, and with the consent of the construction company; and will not, therefore, be required to give way to the previous assignments made to the trust company, which were not assignments of the entire fund,' but only of so much of it as was necessary to pay the notes. (2) It was known that the bank would not pay the checks when they were drawn, and no action can be maintained upon them by the trust company.

It was held in Weinstock v. Bellwood, 75 Ky., 139, that an entire claim can not be severed without the consent of the debtor, and that an action can not be maintained at lawT by the assignee of a part of a debt against the debtor, unless the assignment had been consented to by him. The general rule on this subject is thus stated in 4 Cyc., p. 27: “Partial assignments of such choses in action as are assignable, can be made so as to entitle the assignee to the rights of a co-owner against the assignor. In England, and under some of the decisions of the American courts, an1 order given by a creditor to his debtor to pay a third p,arty so much money out of a specific fund or debt is a valid assignment of so much of the fund or debt. But the weight of authority in the United States seems to be that such assignments, unless made with the consent of the party liable on account of the chose, are not binding upon him, and he may discharge the liability by settlement with the assignor, the same as if no assignment had been made. Courts-of equity, however, have always recognized partial assignments of choses in action for many purposes, and will protect the assignees of such choses whenever they can do so-without working a hardship upon the debtor.” To same-effect, see 2 Am. & Eng. Encv. of Law, 1069, 1070; 3 Pomeroy’s Equity, section 1280. All the assignments in controi versy were partial. After the payment of Sudduth’s note-to the trust company, there would be left a balance of $136.--93 of his part of the fee. And after the payment of Stone’s note to it there would also be a balance of his part of the-fees, as the Mann fee of $2,970.62, or his part of it, was included in the assignment to secure his note. The first assignment of Sudduth to the bank was of $2,500 out of the amount of their fees, and the second assignment was $5,000 out of the fees, the amount of the fees then claimed by Stone and -Sudduth being between $8,000- and $9,000. All the assignments being partial, the assignments to the trust company, having been made before those to the bank, must, be adjudged superior to them, unless'there is something in the case to take it out of the rule that the older equity must prevail over a junior equity, other things being equal. Millar v. Field, 10 Ky., 108.

The $32,131.69 having been deposited in the bank to the-credit of B. H. Young, president, W. A. Sudduth, and H. L. Stone, and to be checked out only on checks signed by the three, Sudduth had no authority, without the consent of: Stone and Young, to authorize the bank to appropriate any. part of the money to the payment of his individual debt to it. The purpose of depositing the money, as it was, to the credit of the three, was to prevent any one of them from appropriating it without the consent of the other two. The form of deposit showed this, outside of the parol agreement. The rule is that, if several persons make a deposit to their joint credit, the bank must have the signatures of all of them appended to the check before paying it, or it takes the risk. 2 Morse on Banking, sections 425-436. The money having been deposited with the bank to the credit of Young, Stone, and Sudduth, and on the agreement that it was not to be paid out except on their joint checks', the bank acquired no title to the money, which it thus held ini trust, by applying it to the payment'of its debt against Sudduth. The law does.not permit one who has acquired possession for one pupose thus to gain an advantage; and ■the legal status of the bank, after the memorandum check was credited to it on the account by the direction of Sudduth, was not different from what it was before. Besides, so much of the deposit as represented the fee of Stone & Sudduth was the property of the ñrm, and Sudduth could not use it to pay his debt to the bank without the consent of Stone. The bank was charged with notice that one of the partners had no right to apply the partnership assets to the payment of his individual debt, and when it made the appropriation by the direction of Sudduth alone it acquire^ no greater rights than he had. Jackson v. Holloway, 53 Ky., 133. A partner in dealing with the firm property is a trustee for the firm. The authorities are uniform that, if a depositor of trust funds appropriates them to the payment of his individual debt to the bank, the latter, haying notice of the character of the fund, is affected with knowledge of the misappropriaton, and will be compelled to refund. 1 Morse on Banking (4th Ed.), section 317. On the other hand, each of the partners having consented to the assignment made by the other to the trust company, these assignments were, in effect, the assignments of the firm, or of as much force as if they had been made in the name of the firm. True, they were partial assignments, but they were afterwards assented to by the construction company, when Young, as president, signed the checks sued on. Besides, the construction company is not complaining. No right of its is affected; and, as we have seen, equity will protect, as far as it can do so without injury to the debtor, rights acquired by'partial assignments.

The rights of the trust company are not affected by reason of the fact that the bank first gave notice to the debtor of its assignments. The rule in England is that, as between successive assignees of the same chose, each being a bonafide purchaser for value, the one who first gives notice to the debtor will be entitled to preference, although his assignment is later in date. Some courts in this country have adopted the same rule, but the weight of authority in America is to the effect that among successive assignments-the- order of time controls. 2 Pomeroy’s Equity, section 695; 4 Cyc., pp. 32, 77. The rule of caveat emptor applies, to sales of choses in action as in other sales of personal property, and, if the seller has sold the thing to one person, and therefore has no title to pass to a second, the latter takes nothing by his purchase. The assignee’s right of action is without prejudice to any discount, set-off, or defense the debtor has before notice of the assignment. Kentucky Statutes, 1899, section 474; Civil Code, section 19.. The purpose of the notice is to protect the debtor in such defenses innocently acquired. It adds nothing to the assignee’s title, which is perfect as between him and the assignor or those diaiming under him from the time of the assignment. While the precise question appears not to have been directly passed on heretofore by this court, the principles announced lead to the conclusion indicated. See Millar v. Field, 10 Ky., 108; Newby v. Hill, 59 Ky., 553; Garrott v. Jaffray, 73 Ky., 415; Beard v. Sharp, 23. R., 1582; 65 S. W., 810. Here no right of the construction company was affected by reason of the failure of appellant to give notice of its assignments to the construction company for a month after appellee’s notice was given. The situation of the parties when the notice was given was just as it was a month before, and the construction company had then no defense against the assignor. The failure of appellant to give the notice sooner, having prejudiced no right, was immaterial.

It was held in Lester v. Given, 71 Ky., 357, that the holder of an unaccepted check on a bank might maintain an action thereon. This case has frequently been followed since, and we regard the rule as settled. Merchants’ National Bank v. Robinson, 97 Ky., 552, 17 R., 368, 31 S. W., 136, 28 L. R. A., 760; Weiand’s Adm’r v. State National Bank, 112 Ky., 310, 23 R., 1517, 65 S. W., 617, 66 S. W., 26, and cases cited. The fact that the bank in this case claimed not to have the money on hand when the checks were drawn is not sufficient to take it out of the rule, for the checks completed the transaction, and were the proper means for bringing to a decision -the question in dispute.

Sudduth died insolvent. He was also considerably overdrawn with the firm of Stone & Sudduth. Whether there will be anything coming to him on the settlement of the firm or what will be the rights of the bank in this event, can not be determined in this ■suit, for neither Stone nor Sudduth’s representative nor his other creditors are before the court.

It is insisted for the bank that the trust company should be required to exhaust the fund arising from the Mann fee before resorting to the bank fund, under the rule that a creditor having a lien on two funds, on one of which another creditor has a junior lien, will he required to exhaust first the fund not incumbered by the junior lien. But that rule has no application, as the bank is not a creditor of Stone’s, and as the creditor of Sudduth it can not impose terms on the trust company as the creditor of Stone. What may be the right of the hank to Sudduth’s part of the Mann fee can not be determined here, as the necessary parties are not before the court.

Judgment reversed, and cause remanded, with directions to enter a judgment in favor of appellant.