Conqueror Trust Co. v. Fidelity & Deposit Co.

Decision Date25 March 1933
Docket NumberNo. 9601.,9601.
Citation63 F.2d 833
PartiesCONQUEROR TRUST CO. v. FIDELITY & DEPOSIT CO. OF MARYLAND.
CourtU.S. Court of Appeals — Eighth Circuit

Grover C. James and Vern E. Thompson, both of Joplin, Mo. (Charles M. Grayston, of Joplin, Mo., on the brief), for appellant.

P. E. Reeder, of Kansas City, Mo. (Leland Hazard, George J. Winger, and Winger, Reeder, Barker, Gumbiner & Hazard, all of Kansas City, Mo., on the brief), for appellee.

Before KENYON, GARDNER, and SANBORN, Circuit Judges.

KENYON, Circuit Judge.

Appellant (herein called defendant) is a banking and trust company, organized under the laws of Missouri, doing business at Joplin, Mo. Appellee (herein called plaintiff) is a surety company, organized under the laws of Maryland. As surety on the fiduciary bond of one C. A. Stone, agent for the Joplin district of the Farm & Home Savings & Loan Association (herein called the association) a Missouri corporation, with principal place of business at Nevada, Mo., plaintiff has reimbursed the association in the sum of $61,500 for defalcations on the part of its agent, Stone; and as subrogee of the rights of the association it now seeks to enforce against defendant an alleged liability for having received funds belonging to the association in payment of a personal indebtedness of Stone. The District Court found the facts to be substantially as alleged by plaintiff, and gave judgment in the amount prayed for.

On November 12, 1921, the association had appointed C. A. Stone its agent for Joplin territory. Stone's duties were to solicit subscriptions for the association's stock, which was of three classes, designated respectively as "monthly installment," "prepaid," and "full paid"; to procure applications for farm or home loans to be made by the association; to collect payments on stock and repayments of principal and interest on loans, and remit the same to the association; and to pay out to borrowers moneys remitted by the association to him as disbursements on loans.

On stock sold and loans procured Stone was entitled to a commission. On the "monthly installment" and "prepaid" stock he was entitled to deduct his commissions before making remittance to the association, whereas his commissions on "full paid" stock and for procuring loans were remitted periodically to him by the association. All expenses of the agency, such as office rent, subcommissions, clerical help, etc., were paid by Stone out of his own funds, derived either from commissions or from outside sources, as by borrowing.

To handle the funds constantly passing through his hands, Stone maintained an account with defendant in the name of "C. A. Stone, Agent." There was some testimony to the effect that the account originally stood in the name of "C. A. Stone, local agent of the Farm & Home Savings & Loan Association, Nevada, Missouri." Until February, 1924, this was the only account carried with defendant. Shortly before that time, at the solicitation of Stone, the association had determined upon making defendant one of the depositories of its surplus funds. The association's understanding with respect to this proposed "depository account," and also its understanding with respect to the "agency account," already established, appear from its letter to defendant of January 28, 1924, the terms of which were accepted by defendant and which we here set forth, as follows:

"Farm and Home Savings & Loan Association of Missouri.

"Nevada, Mo. January 28, 1924.

"Conqueror Trust Co., Joplin, Missouri.

"Gentlemen:

Depository Account.

"Supplementing my letter to you of today, I beg to advise that this account must be handled as follows:

"Agent C. A. Stone may deposit in the account and must take a duplicate deposit ticket and send it to this office with the regular report as to what same covers.

"Although Mr. Stone may deposit in this account, he cannot check on same. Those only who are authorized to sign checks are named on the card. * * *

"From this you will understand why two accounts are to be carried. The other account is the Agent's account, in which Mr. Stone may deposit as well as check on the account.

"But it must be understood and agreed that the Association, through any of its officers, under written request, may at any time be advised as to the condition of Mr. Stone's agency account, and in case of an emergency may check thereon.

"You may `read between the lines' that the only emergency that would exist, causing us to check thereon, would be through surmise of dishonesty or otherwise; and in view of our knowledge of Mr. Stone we do not think such contingency will arise.

"However, there is one contingency that is always possible — and that is death. In that event, we would want to take over the account and render unto the heirs of Mr. Stone that part which belongs to them, we retaining the part that belongs to this Association, as developed by a check of his account. * * *

"Very truly yours "Signed E. E. Levens "Sec'y. & Gen'l Mgr."

"LV

"Enc."

Further correspondence between the association and defendant at that time related to the terms of bonds to be provided by defendant covering the respective accounts. The bond covering the agency account was required by the association to run both to itself and to Stone as obligees, and recited that the account consisted of funds "actually belonging to the Farm & Home Savings & Loan Association of Missouri." Said bond was renewed from year to year. A renewal bond substituted in 1927 was drawn to run to Stone as agent of the association, instead of to Stone and the association, and omitted the recitation concerning ownership of the funds secured. Plaintiff offered testimony showing that such alteration in terms was without the association's knowledge or consent. In all events the fact of the alteration was clearly insufficient to show a change in the nature of the account, and the District Court was entirely justified in disregarding as immaterial the altered terms of the new bond and in concluding, on the basis of all the evidence, including the letter set forth above, that defendant had "knowledge of the Association's interest in the account, and knew that the moneys deposited in said account were the property of the Association"; that Stone "had authority to withdraw funds from that account to pay his commission and to remit balances periodically to the Association; that he did make such remittances several times each month in large amounts by check upon the agency account payable to the Association, and that the defendant knew that such was the practice"; and that "Stone had no authority to withdraw or use the funds in the agency account at will, and that no representations, either express or implied from a course of conduct, were made by plaintiff to defendant that Stone had such authority, or any authority greater than that which the Association initially represented to the defendant."

Stone had originally purchased the agency from his predecessors, Ridgeway & Kirkpatrick, for $32,000. Of this amount he had borrowed $25,000 from defendant, on the security of certain insurance policies, the indorsements of third parties, and an assignment to defendant of a one-half interest in the agency. The association acknowledged notice of the assignment of an interest in the agency, and knew also that its purpose was to secure moneys loaned to Stone. The amount of this initial loan was entirely repaid, but at frequent intervals throughout the existence of his agency Stone borrowed further sums, similarly secured, from defendant, all of which he deposited in the agency account and repaid from that account. The last of these loans, repayment of which form the agency account is the basis of the liability here asserted, was for $38,000, made August 3, 1927. After repayment of this final loan defendant surrendered to Stone the assignment of a one-half interest in the agency.

Stone did not purport to make these loans on behalf of the association, or to bind it thereto. No doubt some of the moneys so borrowed were used in conducting the Joplin agency, but as already stated the expenses of conducting the agency were the personal overhead of Stone and were in no way chargeable to the association. As found by the District Court, "there was nothing within the scope of Stone's authority or duties which made it necessary or expedient for him, as agent, to borrow money to carry on the business of the Association," and the moneys borrowed by him were used in large measure for his own private purpose of rendering to borrowers a "super-service," in the form of advancing disbursements on loans not yet approved by the association. The "agency" was a separate business entity from the association it represented, and obviously the making of the loans in the name of the "Joplin District Agency, C. A. Stone, Dist. Mgr., C. A. Stone," or several variations of that form, in no way bound the association. The District Court was entirely right in concluding that the various loans by defendant to Stone were both purportedly and in effect "for his personal use." Obviously the association cannot be bound on any theory either of ratification or estoppel by its knowledge and approval of that which did not require its consent, viz., the making of personal loans to Stone or his agency. The significance of the fact that some of the moneys borrowed may have reached the association in the form of remittances to it by Stone will subsequently be considered.

As found by the District Court, Stone drew upon the agency account, in which funds of the association and his own — the latter in the form of his commissions, the proceeds of the loans, and funds derived from other outside sources — were thus intermingled, "not only for his commissions and to make remittances to the Association, but also for various personal uses, i. e., that he withdrew wrongfully large sums from the agency account...

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