American Bonding Co. of Baltimore v. Fourth Nat. Bank

Citation88 So. 838,205 Ala. 652
Decision Date12 May 1921
Docket Number3 Div. 466
PartiesAMERICAN BONDING CO. OF BALTIMORE v. FOURTH NAT. BANK OF MONTGOMERY.
CourtSupreme Court of Alabama

Appeal from Circuit Court, Montgomery County; William L. Martin Judge.

Bill by the American Bonding Company of Baltimore against the Fourth National Bank of Montgomery, seeking to hold it as trustee of certain funds and to require the same paid over. From a decree sustaining demurrers to the bill because void by the statute of limitations, complainant appeals. Affirmed.

McClellan J., and Anderson, C.J., dissenting.

Stuart Mackenzie and Ball & Beckwith, all of Montgomery, for appellant.

Weil Stakely & Vardaman, of Montgomery, for appellee.

McCLELLAN J. (dissenting).

This bill was by the appellant against the appellee, filed on May 27, 1919. The original demurrer and the added grounds were filed June 26, 1919, and November 10, 1919, respectively, and the submission on the demurrers was had November 10, 1919. The decree sustaining the demurrers, from which this appeal is taken, was entered June 4, 1920. The cause was docketed and submitted in this court on December 12-16, 1920.

A recital of the presently material facts set forth in this bill will be made.

The appellant is a bonding company, and the appellee is engaged in a general banking business. In 1906 Clara J. Manegold was the guardian of her stepdaughter, Estelle Manegold, who later married W.H. Beavan. In 1906-07 a shortage in the guardian's accounts was found and its amount determined. To satisfy this shortage in the Clara J. Manegold guardianship, George Manegold, the husband of Clara J., borrowed $12,000 from the appellee (Fourth National Bank); the loan being made to him in or through Joseph Manegold & Co., which was the name by which George Manegold conducted his business--a fact averred to be known to the lender, the appellee. The funds thus received were paid into the registry of the court in which the guardianship of Clara J. was pending and was then being investigated; and a decree was entered discharging another bonding company that was bound as the surety for Clara J. in the premises. On, to wit, January 13, 1907, about 30 days after the mentioned loan was effected, George Manegold was appointed the succeeding guardian for the said ward; this appellant becoming the surety of George Manegold on his guardian's bond. "Thereafter," it is averred in the fifth paragraph of this bill:

"On, to wit, the 5th day of February, 1907, the said W.H. Parks, as such register, issued his check No. 69, drawn on the Fourth National Bank of Montgomery to the order of George Manegold, as guardian, for the sum of $12,316.46; that said check is further marked 'a/c Clara J. Manegold v. Estelle Manegold,' and bears the following indorsements, 'Geo. Manegold, Guardian'; that on said 6th day of February, 1907, the said Fourth National Bank opened an account in the name of the said George Manegold, as guardian, and credited said account with the sum of $12,316.46, the same being the said check of the said W.H. Parks, as register, drawn on said Fourth National Bank in favor of said George Manegold, as guardian; that thereafter, on, to wit, the 20th day of February, 1907, the said George Manegold, as guardian, drew a check against said account, payable to Joseph Manegold & Co., which was the style under which George Manegold was doing business as aforesaid, for the sum of $5,000, which said check was paid by said Fourth National Bank and said sum of $5,000 credited to the said account of said Joseph Manegold & Co. with said Fourth National Bank; that on said 20th day of February, 1907, the said Joseph Manegold & Co. drew its check, payable to said Fourth National Bank, which said check was charged to the account of the said Joseph Manegold & Co. and the proceeds thereof applied on said indebtedness of the said George Manegold, as Joseph Manegold & Co., to the Fourth National Bank in said sum of $12,000; that thereafter, on, to wit, the 12th day of March, 1907, the said George Manegold, as guardian, drew his check on said account in said Fourth National Bank for the sum of $7,300, payable to said Joseph Manegold & Co., which said amount was credited to the account of said Joseph Manegold & Co. in said Fourth National Bank, and was thereafter applied to the payment of said indebtedness of $12,000; that after the payment of said checks the balance to the credit of said George Manegold, as guardian, of $16.46, remained to his credit until the 1st of November, 1912, when the said George Manegold, as guardian, drew a check therefor; that said three checks for $5,000, $7,316.46 and said deposit of $12,316.46 are all of the debits and credits appearing on said account of said George Manegold, as guardian, in said Fourth National Bank."

Estelle Manegold became of age on the 19th day of October, 1908, the guardianship of George Manegold was apparently settled by the receipt of the ward, and in 1909 a consent decree was entered discharging Manegold and this appellant as the surety on his guardian's bond. The decree was impeached for fraud in a bill filed by Estelle Manegold Beavan, September 15, 1913, and through the contest that followed this decree was annulled in 1913. Manegold v. Beavan, 189 Ala. 241, 66 So. 448; s.c., 201 Ala. 169, 77 So. 695. Consequent upon the liability finally judicially established (in May, 1919), through that litigation, this appellant, as surety for George Manegold, guardian, paid to Estelle Manegold Beavan the sum of $18,492.76, with $129.75 court costs.

It also appears from the bill that in June, 1914, while the mentioned litigation was pending, George Manegold filed his petition in voluntary bankruptcy; that he died in December, 1914; and that Estelle Manegold Beavan filed against the bankrupt's estate the claims resulting from his guardianship for her, and that she received in 1918 and 1919, in dividends under the administration of the bankrupt estate of George Manegold, her late guardian, the sum of $8,972.50.

In the seventh paragraph of the bill it is averred, among other things:

"*** That the said Fourth National Bank was charged with notice of the trust impressed upon said sum of $12,316.46 credited by it to the account of George Manegold, as guardian, it having been put on notice of the character of said funds by said check of said W.H. Parks, register, for said sum, drawn on said Fourth National Bank to the order of said George Manegold, as guardian, and said Fourth National Bank recognized the trust impressed upon said funds by placing the same to the credit of George Manegold, as guardian; that thereafter the said Fourth National Bank, with knowledge of the character of the funds deposited with it, permitted the said trustee, the said George Manegold, guardian, on, to wit, the 20th day of February, 1907, to divert $5,000 thereof to his own use, and thereafter, to wit, the 12th day of March, 1907, permitted the said George Manegold to divert the further sum of $7,300 thereof to his own use, which said funds diverted as aforesaid were by said Fourth National Bank credited to the account of said Joseph Manegold & Co., which said firm the said Fourth National Bank well knew was nothing more than the name or style under which the said George Manegold did business and your orator avers that said Fourth National Bank further participated in said breach of trust by permitting said George Manegold to use said trust funds, diverted to the said account of Joseph Manegold & Co., as aforesaid, to repay to the said Fourth National Bank said $12,000 loaned by it to the said George Manegold, under the style of Joseph Manegold & Co., as aforesaid."

The bill's averments and prayer characterize it as a bill for subrogation of a surety to the rights of the creditor of the surety's principal against a third party who participated in the misappropriation by the surety's principal of money of a cestui que trust. Besides a general prayer, the particular prayer is:

"That said Fourth National Bank be declared to be a trustee of said trust fund to the extent of $12,300 for the estate of said Estelle Manegold Beavan, and that it be ordered and decreed forthwith to pay over to your orator [[complainant appellant] said sum. ***"

The bill's theory refers it to this well-established equitable doctrine: Where the surety of a fiduciary, like a guardian, has been compelled to make good a breach of trust by his principal, the surety is subrogated to the right of the cestui que trust as against the fiduciary, as well as against any participant in the breach which the surety has been compelled to satisfy. 25 R.C.L. p. 1332, § 16; 13 Ann.Cas. pp. 429, 430, collecting decisions affirming the doctrine. Illustrations of its effect are afforded by cases where banks of loan and deposit knowingly accept payment of the individual debt of the fiduciary to the bank out of funds on deposit that the bank knows are funds impressed with a trust character. U.S. Fidelity Co. v. Adoue, 104 Tex. 379, 137 S.W. 648, 138 S.W. 383, 37 L.R.A. (N.S.) 409, Ann.Cas.1914B, 667, annotation, pp. 677, 678; Wolffe v. State, 79 Ala. 206, 58 Am.Rep. 590.

As it appears from this statement of the bill, it is averred expressly that the loan was made to George Manegold, in the name of Joseph Manegold & Co., and that, to the actual knowledge of the bank, this company was but the trade name--a commercial alter ego--under which George Manegold conducted his business. The necessary result from these averments is that the check by George Manegold, guardian, passing the trust fund to Joseph Manegold & Co., was in effect, a conversion of that fund to George Manegold individually, with the knowledge of the bank, and that when "Joseph Manegold & Co." gave the checks described...

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