Rock Springs National Bank v. Luman

42 P. 874, 6 Wyo. 123, 1895 Wyo. LEXIS 9

• Court: Wyoming Supreme Court
• Decided: December 6, 1895
• Status: Published

Opinions

Geoesbeok, Chief Justice.

This cause was decided at the October, 1894, term of this court and the judgment of the district court, of Sweet-water County was reversed. 38 Pac., 978. (5 Wyo., 159.) A rehearing was granted, and the cause was fully argued thereon. The former decision did not go to the merits of the cause, and it is first necessary to review the former opinion of this court to see whether it can be upheld.

1. It was held in the former decision of this court, that the district court erred in the admission of certain conversations between Luman, the plaintiff below, and one Pfeiffer. The facts are fully stated in the former opinion, but they will be reviewed as a matter of convenience. -Pfeiffer had mortgaged certain sheep to Luman as security for the payment of $24,100, evidenced by certain promissory notes, of which there was due at the time of the transactions detailed in the evidence, $19,100, under the terms of the instrument making the whole debt due at the option of the mortgagee upon failure to pay any instalment when due; and there was a note for $5,000 and interest from April 9, 1893, due at that time. Under express provisions of our statute the mortgage contained a provision permitting the mortgagor to sell and dispose of the mortgaged sheep or any portion thereof in the due course of business or to preserve and care for the same, and to replace such property sold with other property of like kind and character, which shall be subject to the operation and effect of the mortgage, with a proviso that the proceeds of such sale or sales shall be applied as and toward the payment of the debt secured by the mortgage. The mortgage was filed in the office of the county clerk of Sweetwater County, in which the bank, plaintiff in error, was doing business, on the 18th of April, 1893, one week after it was executed.

The law in force at the time of the filing of the mortgage, and yet in existence, is as follows : “It shall be lawful for the parties to any mortgage, bond, conveyance, or instrument intended to operate as a mortgage of per-, sonal property as provided by law, to insert therein permission to the mortgagor to use, handle, operate, herd, manage, and control the property mortgaged, and to market, sell, and dispose of portions thereof, as may be necessary in the course of business, or to preserve and care for the same, and replace such property, or parts sold, with other property of like kind or character, which property replaced may be purchased either with the net proceeds of the mortgaged property sold, or otherwise, all of which shall be subject to the operation and effect of such mortgage, bond, conveyance, or instrument intended to operate as a mortgage. But unless permission is expressly given otherwise in the mortgage, the mortgagor shall pay over to the mortgagee all moneys received from the sale of any part of the mortgaged property aforesaid.” Sec. 13, Ch. 7, Sess. Laws 1890-91, as amended by Ch. 87, Sess. Laws 1890-91. In relation to the effect of filing the mortgage, the statute says: ‘ ‘ Every such mortgage, bond, instrument, or conveyance intended to operate as a chattel mortgage shall take effect and be in force from and after the time of delivering the same to the clerk for filing and not before, as to all creditors and subsequent purchasers and mortgagees in good faith for valuable consideration and without notice,” etc. Sec. 10, id.

Pfeiffer, the mortgagor, disposed of 1,356 head of the 6,800 head of sheep mortgaged, at Chicago and another Illinois town for $2,880, net, and took a draft on a Chicago bank in payment. On his way home and while at Laramie, Wyo., he remitted this draft to the Eock Springs National Bank, indorsed by him to such bank, with directions to place it to his credit, and stated that he would leave for Eock Springs the day following. This letter with the remittance was received by the bank on the following day, November 28, 1893, and it was applied by Mr. Goble, the vice-president and acting cashier, to the extent of $2,066.59 in payment of the pre-existing debts of Pfeiffer to the bank on that day; viz., $987.25 in payment of an overdue note of Pfeiffer to the bank and $1,079.34 in payment of an overdraft of Pfeiffer on the bank. Upon the arrival of Pfeiffer, the following day, November 29, Goble, the vice-president of the bank, informed Pfeiffer of the application of the money, and Pfeiffer made no objection thereto. The residue of the draft, $813.41, was then applied on the account of Tim Kinney and Company, a copartnership, the leading member of which was the president of the bank. Pfeiffer states that this application to Kinney and Company was made prior to his return, but this is contradicted by Goble and by the sworn answer of Pfeiffer to the interrogatories attached to the petition, and which were admitted as evidence on behalf of the defendant. Certain conversations between Pfeiffer and Luman, his mortgagee, after the return of tbé former to Rock Springs were admitted in evidence over the objection of the defendant bank. They took place in the bank while Pfeiffer was acting as cashier. In them Pfeiffer stated to Luman that he had not come out very well with the sheep, and that the bank had taken the money which he had sent on deposit, and had used it, and he had no way of getting it. Luman suggested that Pfeiffer should see the other officers of the bank, and see if they would not become security for him on his note, and if that could be done, he, Luman, would let the matter go for two years longer. It was finally agreed that the matter should rest for a week or so, in order that Pfeiffer might see these parties and endeavor to “ make some turn without bringing suit.” Thereafter, Luman again saw Pfeiffer at the bank, and the latter stated that he could not do anything to help out the former. Pfeiffer further stated that the application of the money by the bank was not made with his consent, and that he had sent it in good faith that Luman should have the money. I do not see that these admissions of Pfeiffer were error. They were not material to the issue, and the same matter appears in the other testimony in the case, both in the testimony of Pfeiffer and of Goble. The former had stated in his direct evidence before the time his declarations were admitted, and without objection, that the money was. applied without his consent. It nowhere appears that he did directly assent to the application of the money by the bank, except as to the credit given to Kinney and Company, and this is an undisputed fact. So far as his good faith in the transmission of the draft to his credit is concerned, that is to be gathered from his acts and not from his assertions, which can not be assumed as the act of the bank. He was legally bound to deposit the money in favor of Luman, as he was but the agent or trustee of Luman in the matter, and the proceeds of the mortgaged sheep under the terms of the mortgage and by operation of the statute should have been applied to the satisfaction pro tanto of the mortgage debt, and paid to Luman, the mortagee, or passed to his credit. The defendant bank could not have been prejudiced by the admission of Pfeiffer’s declarations, as the same facts were brought out by other testimony in the case not objected to, or by the evidence of witnesses for the bank.

2. The second ground of reversal in the former opinion was that the trial court erred in the rejection of testimony to show that while Pfeiffer was cashier of the bank, yet, during his absence in shipping, selling, and disposing of the mortgaged sheep, he received no compensation from the bank. It was sought to have Goble, the vice-president, testify as to this fact, but he was not allowed to do so, upon objection. By consent of parties before Goble testified, the sworn answer to the interrogatories attached to the petition and propounded to Pfeiffer as cashier of the bank, were admitted in evidence on the part of the bank, and from these it appears that while Pfeiffer was absent with the sheep, from Nov. 5 to Nov. 29, 1893, he was not discharging his duties as cashier, and received no compensation during that period. So the fact sought to be elicited from Goble was already part of the evidence of the bank, and if admitted would have been merely cumulative. But it can make no difference whether or not Pfeiffer received compensation from the bank while on his mission to Chicago, as that fact could not make him its agent as to his private concerns. There was no error in the rejection of Goble’s testimony on this point, as the fact already appeared in the evidence and was not disputed, and because the bank would not have been prejudiced by its omission to show that Pfeiffer was not paid by it during his absence. It is no unusual thing for officials of a private corporation to receive salary during a vacation, or even while temporarily absent attending to matters purely private and personal, and such generosity does not make the corporation responsible for the acts or conduct of the official during such period, or indeed on any other occasion while not acting within the scope of his employment.

3. It was held in the former opinion that, by the admission of the declarations of Pfeiffer, and the rejection of Goble’s testimony upon the matter of non-payment of salary, the trial court indicated by such rulings that it adopted the theory, or one of the theories of the plaintiff below, that Pfeiffer being the cashier of the bank, even while absent attending to his private business, in all matters relating to the sale of the mortgaged property, and the application of its proceeds, he acted as agent of the bank and in making up its decision “treated Pfeiffer as the agent of the bank in this transaction, and held it liable for his acts and declarations, and imputed his knowledge to it as notice.” Further, that as the question of notice, being the main question in the case, -upon the competent evidence was a “close” one, the case ought to be closely and accurately tried. There being no special findings in the case, the theory of the trial court can only be a matter of surmise and conjecture. The citation from Elliott’s App. Proc., Sec. 591, I think rests largely upon the rulings as to the pleadings in the case. The general rule is that if the trial court arrives at the correct result, no matter how incorrectly it reasoned, the errors occurring at the trial, if not prejudicial, are cured by a proper final decision. The error complained of must be wrong and prejudicial,' and must probably have operated to bring about a wrong final result. This doctrine is illustrated by the cases which hold that rejecting competent evidence that could not have influenced the decision, or admitting incompetent evidence where it could not have conduced to a wrong decision, is not error. Elliott’s App. Proc., Sec. 593. I do not think that the alleged errors in the trial point unerringly to the conclusion that it adopted the theory that Pfeiffer bound the bank by his knowledge because he was its cashier. It is true that counsel for the defendant in error, the plaintiff below, in this court, advance that as one of their theories, but they do not rely upon it, to the exclusion of other theories. I can not impute to the trial court such a wilful disregard of an elementary principle that an agent to bind his principal must act within the scope of his employment, and further, that an agency could exist in this case because Pfeiffer was cashier of the bank, and hence bound the bank during his term of service by all of his acts relating to his own affairs, outside of his duties. The presumption is that the proceedings of a trial court are correct until affirmative error has been shown; and error can not be predicated upon the rulings during the trial, unless they were erroneous and prejudicial, and must have contributed to a wrong result.

At the time of the first hearing upon the cause, I reluctantly concurred in the opinion, but upon a full examination of the record, and of the law of the case, I am convinced that I was wrong in expressing my concurrence. It is my duty to change my views when I become convinced of my error, and I do so without hesitation, as many judges have done before me. It has been well said that ‘ ‘ consistency is the hobgoblin of small minds. ’ ’ ^Nothing can 'be so dangerous to the administration of justice as the presence of one in a judicial position who adheres to a decision when it is manifest to him that it is erroneous. Upon the other questions involved in the case, I am of the same opinion as upon the discussion of the case upon the original hearing, and I shall now state my views upon this question, the vital one in the case.

4. One of the grounds for affirmance urged by counsel for the defendant in error is that no knowledge or notice of the trust character of the fund was necessary to charge the bank, as the draft was applied in the payment of antecedent debts, those due the bank and Kinney & Co. It has been a matter of some dispute whether or not a person taking property in consideration of a pre-existing debt is a purchaser for value, and has lost nothing by the transaction, while others maintain that the creditor divests himself of the right of action or of securing the original ■liability, and places himself in a worse position than he would have done by a definite forbearance of the debt, where there is an absolute discharge and extinguishment of the antecedent debt, which constitutes a valuable consideration. In Fetter on Equity, the former is said to be the general rule ; but in Horton on Notes and Bills, the contrary view is adopted that an antecedent or pre-existing debt is ‘ ‘ probably ’ ’ a sufficient consideration to a negotiable bill or note or the transfer thereof, and further that a bill or note transferred as collateral to an indebtedness is ‘ ‘ probably ’ ’ transferred upon a sufficient consideration. Fetter on Equity, 96; Bank v. Farwell, 58 Federal, 633; Burnett v. Bank, 38 Mich., 630; Long v. Bussell, 45 N. Y. Sup. Ct., 435. I trust that Mr. Justice Conaway, who has devoted much time to the consideration of this question, will present his views fully in his opinion in the case, as it will be undoubtedly a settlement of this vexed question where the doctors of the law disagree. I do not think that it becomes necessary to decide that question, as I think that the bank had a right to treat this deposit of Pfeiffer like that of any other customer, and place it to his credit, even with the knowledge that it was not his own, but held in a fiduciary capacity, but not to apply it to the payment of his indebtedness to it, and this view will be elaborated hereafter.

This brings us to our consideration, the main question in the case. Did the officers of the bank know or did they have sufficient information to put them upon the inquiry that the draft transmitted from Pfeiffer was the proceeds of mortgaged property and was money or its representative which belonged to another ? This question is to be determined by a review of all the facts and circumstances of the case as disclosed by the evidence. The trial court found for the plaintiff generally, and to warrant a reversal of its finding of fact, it must be clearly against the weight of evidence or not grounded upon sufficient evidence. As to the conclusion of law based upon a finding of fact, that is different matter, and is subject, of course, to no presumption, except such as arises generally from the action of a court of general jurisdiction, acting within its legitimate sphere. The universal rule is that an appellate tribunal will not reverse upon a mere question of fact unless it appears that the trial court decided against the weight of evidence or contrary to the evidence. A mere conflict in the evidence is not sufficient cause for reversal, but the trial court must have decided against the weight of the evidence or upon insufficient evidence. This is particularly so where the witnesses testify in open court and where the trial court can observe, as we can not, the deportment of the witnesses upon the stand and their manner of testifying, while we are to decide without these important adjuncts in estimating the value to he put upon the testimony of each witness, and in case of a conflict of evidence, the credibility of the witness. It becomes necessary to go somewhat in detail into the evidence-upon this point of notice. Pfeiffer testified that he does not think the officials of the bank knew of his relations with Luman, and that he did not think that they knew of the object of his mission to sell the sheep. He admits that the money was Luman’s, and'the reason for his action in not objecting to the application of the money by the bank or in not directing it to be applied to the decrease of the mortgage debt, was that he did not want to antagonize the bank. Luman testifies that during Pfeiffer’s abseúce with the sheep he went into the bank and asked Goble, the vice-president and acting cashier, how Pfeiffer was getting along with his sheep, and when he looked for him back. Goble answered that he had not heard from Pfeiffer since he shipped the sheep from Rawlins. On cross-examination this testimony was not shaken to any extent. Hamlin, the attorney for Luman, states that on the 1st of December, 1893, he, with Luman, went to the bank for the purpose of making a demand for the money, the proceeds of the draft, and that Goble said that “he had no direct knowledge of the source from which the money was derived. ’’ Goble does not remember the exact conversation. It must have had reference to the time when the draft was received, as Goble swears that he did not know until shortly after Pfeiffer had returned, and after the application had been made, that the money belonged to Luman. Goble testifies that the draft was issued by one Chicago bank on another so that he must have been aware that the draft was made in Chicago and that under" the circumstances it must have been in payment of a transaction occurring in that city. He with all others had notice of the filing of the mortgage and of its contents, and was presumed to know the law, in respect to its provisions that all moneys received from the sale of any part of the mortgaged property should be paid over to the mortgagee. He states that at the time of the application of the moneys to the bank, he did not have any knowledge that it was realized from the sale of mortgaged property or what the money “has been received from, or when, or how.” When Pfeiffer left town, he “supposed, or at least understood, that he was going out with sheep,” that Pfeiffer had a sheep ranch over north of Pock Springs, that he heard that Pfeiffer was east with sheep, on the street, but did not know where he got the information or “rumor;” that he knew in a general way of Pfeiffer’s financial condition and standing, and that he was engaged in the sheep business; that he knew when Pfeiffer bought these sheep, and would n’t have thought that he had money sufficient to pay for them; that he did know some months after the purchase of these sheep that Pfeiffer was in debt on them, but did not know how much; that he knew that the purchase from Luman “covered a good deal of money;” that Pfeiffer had about one thousand dollars’ worth of property outside of his sheep business, some of it in the shape of a homestead, which he supposed was his; that he, Goble, had a conversation with Kinney, a director of the bank after Pfeiffer went away; that he stated to Kinney, in speaking of Pfeiffer’s affairs in a general way, that it looked bad for him, Pfeiffer, “the way the market was going, and the way the prices were declining. ’ ’ In addition to this, Goble testifies that Pfeiffer had an income of $40 or $50 per month outside the bank, but he knew of no considerable amount at any one time that would come except through the sheep business. He further states in response to a question by the court that the note for which a portion of the draft was supplied was given the first of August, 1893, and was due in 90 days, and that the overdraft had been accumulating from June to December of that year, and he refreshes his memory by asking Luman in open court about the time of the receipts for the wool, sometime in June, 1893.

The draft was forwarded to the bank from Laramie, about a day’s journey by rail from Rock Springs. At the time of its application, Pfeiffer was indebted to the bank over two thousand dollars and to a copartnership, of which a leading director of the bank and its president was a member, for a thousand dollars more; and this latter fact seems to have been known to Goble at the time of the application of the moneys as he suggested the transfer, and as Pfeiffer states that the application was made by Goble, and Goble states that it was done with the sanction of Pfeiffer. It seems to me difficult to escape the conclusion, from a review of all the evidence in the case, that Goble, the vice-president of the bank, had knowledge of the source from which the draft was derived, and that it represented the proceeds of mortgaged sheep, and was merely held by Pfeiffer as trustee or agent for the true owner. In addition to the notice of the mortgage and its contents, and of the positive provisions of the statute directing the application of the proceeds of the sale of the mortgaged property to the reduction of the mortgage debt, a wise provision for the benefit of all unsecured creditors, are the facts well known to Goble that Pfeiffer was heavily in debt to Luman for the sheep; that he had gone east with sheep; that the markets were bad; that the bank held a large claim against him on balances and overdue paper; that Pfeiffer had no means from which he could realize such a comparatively large sum of money as that remitted by the draft, $2,880, except through the sale of his sheep or through the sheep business; the conversations had with Luman, and the admission made to Hamlin that he had no “, direct” knowledge of the source from which the money was derived. These facts and others I have mentioned convince me that Goble must have known when he received the draft from Pfeiffer that it represented the proceeds of the sale of sheep mortgaged by Pfeiffer to Luman. As to what constitutes actual notice has been well stated as follows: “Vague reports from persons not interested in the property do not amount to actual notice; nor do more general assertions that some other person claims title. It has even been stated' that the notice must be given by some person interested in the property, or his agent, to the party charged, or his agent, and communicated in the same transaction, or in the negotiation leading up to it. But it is. believed that the true rule is that knowledge of facts, from whatever source obtainedwhich are sufficient to put an ordinarily prudent man on inquiry, will charge a purchaser with actual notice of all the facts which such an inquiry would have developed.” Fetter on Equity,. 83. And again from the same author at page 96 : í£ The maxim that he who comes into equity must come with clean hands is peculiarly applicable to one claiming to be a bona fide purchaser. Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another, even through the forms or technicalities' of law, together with an absence or belief of facts which would render the transaction unconscientious. Hot only must there be an absence of positive fraud, but any inequitable conduct by the purchaser toward his grantor, or the latter’s creditors, defeats the protection which equity would otherwise accord a bona fide- purchaser.” I do not think, however, that the bank is in the attitude of a purchaser of negotiable paper, as the draft should be considered as currency, and as it had the right, even with knowledge through its officer of the trust character of the fund transmitted to it by Pfeiffer, to place the amount to his credit, and even to pay his checks drawn on it, not payable to itself or passing to it with such knowledge; but it bad no right to participate in the wrongful diversion of the fund and pay itself out of the proceeds of the draft. A banker is not required to protect the rights of third parties or to initiate any inquiry between him and the customer, but if the depositor seeks to pay his own debt to the banker by an appropriation of funds to his credit, when the bank knows such funds to be of a fiduciary character, the bank then becomes liable as a participant in the unlawful diversion of the trust funds, and can not rely upon any presumption that the moneys drawn will be used in discharging the trust or for the benefit of the cestui que trust. 1 Morse on Banks and Banking, 317, p. 541; Howard v. Deposit Bank, 80 Ky., 496; Bank v. Clapp; 76 N. C., 482; Commercial Bank v. Jones, 18 Texas, 811. Before leaving this branch of the case, as to the notice and knowledge requisite to charge a bank with notice of the claims of third persons, we desire to cite, as supporting our views, the case of Union Stock Yards Nat. Bank v. Gillespie, 137 U. S., 411, in which the facts and circumstances developed in the evidence are somewhat analagous to those of the case at bar, and in which case the bank was held liable on testimony no stronger than that presented in this case, for applying moneys of a depositor credited in his own name, to the payment of his debts, when the bank was assumed to have had knowledge of the fact that the moneys were really those of a third person. Although the relation between a bank and its depositor is generally that of debtor and creditor, and the balance on the account is only a debt, yet the question is always open while the fund remains, To whom in equity does it beneficially belong ? If the money belonged to a third person, and was held by the depositor in a fiduciary capacity, its character is not changed by being placed to the credit of the trustee in his bank account. Nat’l Bank v. Ins. Co., 102 U. S., 783. It seems to me that when this fund is traced to the bank and is converted to its own use with knowledge and notice of its trust character, that the bank should be held liable; but otherwise when the payment is made to a third person at the direction of the trustee, as in that case the bank becomes but the mere channel or medium through which the misapplication is made.

The bank had knowledge and notice of the nature of the deposit of its trust character, and could not lawfully pay itself out of it to satisfy the indebtedness of Pfeiffer, and as to the sums so appropriated by it in payment of the amounts due it from him, on the overdraft and note, amounting to $2,066.59 and interest thereon it should be held liable. As to the residue, the sum of $813.41 passed to the credit of Tim Kinney & Co., there is not sufficient proof to show that such co-partnership participated in the diversion to hold them, and they are not parties to the suit; and the bank having merely followed the direction of Pfeiffer in this respect, was not bound to protect the rights of Luman by setting up his rights, the y'ifó tertii. As to this sum, the bank is not liable.

The judgment must be affirmed as to the sum of $2,066.59 and interest thereon from the date of the wrongful application and reversed as to the remainder. The cause will be remanded to the district court for Sweet-water County, with directions that in case the plaintiff below, Abner Luman, does not file a remittitur for the sum of $813.'41, with interest thereon, in such manner as to reduce the judgment to be entered as of the date of its rendition to the sum of $2,066.59, and interest thereon from the date of its application, that is, from the 28th day of November, 1893, that a new trial be granted. In case such remittitur shall be filed, the judgment shall stand affirmed as reduced.

PotteR, J., concurs.