Fidelity & Deposit Co. of Maryland v. FARMERS'BANK

• Decision Date: 04 November 1930
• Docket Number: No. 8779.,8779.
• Citation: 44 F.2d 11
• Parties: FIDELITY & DEPOSIT CO. OF MARYLAND v. FARMERS' BANK OF BATES COUNTY, MO.
• Court: U.S. Court of Appeals — Eighth Circuit

44 F.2d 11 (1930)

FIDELITY & DEPOSIT CO. OF MARYLAND v. FARMERS' BANK OF BATES COUNTY, MO.

No. 8779.

Circuit Court of Appeals, Eighth Circuit.

September 8, 1930.

Rehearing Denied November 4, 1930.

Leland Hazard, of Kansas City, Mo. (P. E. Reeder, of Kansas City, Mo., and O. W. Littleton, of Baltimore, Md., on the brief), for appellant.

D. C. Chastain, of Butler, Mo. (Cyrus Crane, of Kansas City, Mo., on the brief), for appellee.

Before KENYON, BOOTH, and GARDNER, Circuit Judges.

BOOTH, Circuit Judge.

This is a suit in equity by the Fidelity & Deposit Company of Maryland against the Farmers' Bank of Bates County, Mo., to recover an account of moneys which the Fidelity Company has paid to Bates county, Mo., on a bond given to the county by the county treasurer with the Fidelity Company as surety, the Fidelity Company claiming subrogation to the rights of the county against the bank.

A motion was made to dismiss the first amended bill of complaint, and the motion was granted. A second amended bill of complaint was interposed, and a motion was made to dismiss it. A number of grounds were stated in the motion: First, that upon the face of the bill the court had no jurisdiction; second, that the bill failed to state facts sufficient to constitute a cause of action in equity; third, that the second amended bill of complaint was a departure from the first; fourth, fifth, and sixth, that the cause of action, if any, was barred by the three-year statute of limitations and the five-year statute of limitations of the state of Missouri. A decree was entered dismissing the second amended bill of complaint; and providing that the memorandum, which had been filed upon the dismissal of the first amended bill and similar bills against other defendants, should be refiled in connection with the decree. The memorandum contained this statement: "The defendants have each moved to dismiss the bills upon sundry grounds. All have been considered but the consideration of one is deemed sufficient. This ground of dismissal is that no equity is stated in the bills."

The Allegations of the Bill.

The second amended bill of complaint (hereinafter called the bill), contains seven counts. The first count alleges as facts, among others, the following: Jurisdiction based upon diverse citizenship; election of Claude A. Morwood in November, 1920, as county treasurer of Bates county, Mo.; qualification as such officer, and service until April 1, 1925; giving of a bond March 9, 1921, by Morwood with appellant as surety in the sum of $44,000, conditioned for the faithful performance by Morwood of his duties as county treasurer; the duty of the county court of the county under the statutes of the state was to select as the official county depository the banking corporation of the county which agreed to pay the highest rate of interest on the funds of the county, and which was otherwise qualified; there were three banking corporations in the county, viz.: Farmers' Bank of Bates County (hereafter called defendant bank), People's Bank, and Missouri State Bank; an unlawful agreement was entered into between said banks not to compete with each other in bidding for the funds of the county, but to induce Morwood as county treasurer to deposit the funds of the county in said banks in approximately equal amounts regardless of which one was selected as the official county depository; the duty of Morwood as county treasurer was to deposit all county funds in his hands in the official depository; Morwood had no authority as county treasurer to deposit county funds in any bank other than the official county depository; the county court duly selected the defendant bank as the official depository of the county funds; it acted as such depository from May 4, 1921, to May 11, 1923; deposits were made by Morwood as county treasurer of the county funds in the said three banks in approximately equal amounts pursuant to said unlawful agreement; Morwood as county treasurer had no authority to pay out the funds of the county or withdraw the same from the depository except to pay warrants drawn by said county court; he had no authority as county treasurer to pay or withdraw funds of the county except by check drawn by him as county treasurer upon the county depository in favor of the legal holder of such a warrant; defendant bank had knowledge of the authority of Morwood as county treasurer and the limitations thereon; Morwood as county treasurer kept funds of the county on deposit in said defendant bank and credit therefor was entered on the books of the bank in an account entitled, "Claude A. Morwood, County Treasurer of Bates County, Missouri," or in similar words; said bank had knowledge that the funds in said account were the exclusive property of Bates county, that Morwood had no personal right, title, or interest in said funds and no right to dispose of the same except in the manner above stated; Morwood as county treasurer in making all withdrawal of county funds from the bank used official form checks having on the face thereof "Claude A. Morwood, County Treasurer, Bates County, Missouri," and having beneath the signature line the words, "County Treasurer"; Morwood kept in said defendant bank a personal account in his individual name; he deposited county funds in the first instance in the county treasurer's account, and then transferred them from the treasurer's account to his personal account; the personal account of Morwood in said bank was at all times composed entirely of funds transferred from said county funds; no deposit was made by Morwood of personal funds in the county treasurer's account; the county treasurer's account was composed of county funds exclusively; none of the withdrawals or payments, nor any of the transfers or other dealings with the funds of Bates county alleged in this count or in any of the other counts, were for the benefit or use of said Bates county, and it received no use or benefit therefrom; during the period from May 4, 1921, to May 11, 1923, Morwood, without authority and without warrants being drawn by the county court, drew checks on the official forms payable to himself, and defendant bank paid out of the funds of the county the amount of said checks (upwards of $7,000) to Morwood or credited them to his personal and individual account, with knowledge by the bank that the checks were wrongfully drawn by Morwood in favor of himself, and with knowledge that Morwood was converting the funds represented by said checks; defendant bank and/or Morwood converted the proceeds of said checks to their own use, with full knowledge by defendant bank or with information and knowledge which made it the duty of said bank to inquire into the validity of the withdrawal of said county funds by said checks; defendant bank knew that the funds in the account of the county treasurer belonged solely and exclusively to the county, and that Morwood had no right, title, or interest to them except as county treasurer, and no right to withdraw the same except upon warrants drawn by the county court of Bates county, and knew that the funds of Bates county were trust funds and that Morwood occupied a fiduciary relationship with respect thereto; the wrongful paying out of funds of said county as stated rendered the bank liable as trustee and trustee ex maleficio to Bates county; upon demand by Bates county, plaintiff, as surety upon the official bond of Morwood, paid to said county the amounts paid out as stated by said bank, and received an assignment from said county of all rights, claims, and causes of action which it might have against the bank; it was the duty of defendant bank under the statutes of the state of Missouri to make a statement in duplicate of the amount of interest accrued for each month and of the balance standing to the credit of the county with defendant bank, and to deliver one of said statements to the county treasurer and one to the county clerk of said county; defendant bank failed and neglected to make said monthly reports to the county clerk of said county during the term of office of said Morwood, thereby enabling him to falsify his reports and records and to conceal his defalcations.

Count II alleges as facts: During the period May 4, 1921, to May 11, 1923, Morwood, without authority and without warrants drawn by the county court, drew checks on the official form payable to defendant bank; the bank, knowing that the checks were wrongfully drawn by Morwood, that the bank held no warrants for same, and that Morwood had no right or claim to the county funds and was converting the same, credited the personal account of Morwood with the amounts of said checks, and/or received and converted to its own use the proceeds thereof by applying the same to satisfy the personal debts of Morwood to said bank, or by otherwise disposing of the same; said checks amounted to $583.50. The general allegations of count I are adopted and made a part of count II.

Count III alleges as facts: During the term of office of Morwood he drew checks, payable to defendant bank, upon the county funds on deposit in said Missouri State Bank and in said People's Bank; said checks were drawn upon the official form of check, and beneath the signature line were the words, "County Treasurer"; the amount of the checks was $460.02; defendant bank, knowing that said checks were wrongfully drawn by Morwood in favor of defendant bank, and that said bank held no warrants for the same, and that Morwood had no claim or right to the county funds represented by said checks, and that Morwood was converting the funds represented by said checks, wrongfully received and accepted said checks and collected the proceeds thereof and credited the personal account of Morwood at said defendant bank, and/or received and converted said proceeds to its own use by applying the same to satisfy the personal debts of Morwood to said defendant bank; defendant bank knew that the...