Am. Nat. Bank Of Macon v. Fid. & Deposit Co. Of Md. Exch. Bank Of Macon

• Decision Date: 04 October 1907
• Citation: 58 S.E. 867,129 Ga. 126
• Court: Georgia Supreme Court
• Parties: AMERICAN NAT. BANK OF MACON v. FIDELITY & DEPOSIT CO. OF MARYLAND. EXCHANGE BANK OF MACON v. SAME.

58 S.E. 867

(129 Ga. 126)

AMERICAN NAT. BANK OF MACON

v.FIDELITY & DEPOSIT CO. OF MARYLAND. EXCHANGE BANK OF MACON

v.SAME.

Supreme Court of Georgia.

Oct. 4, 1907.

1. Banks and Banking — Improper Withdrawal of Funds—Liability of Bank.

If a bank has notice or knowledge that a breach of trust is being committed by the improper withdrawal of funds, it incurs liability, becomes responsible for the wrong done, and may be made to replace the funds which it has been instrumental in diverting; and it appearing that the funds alleged in this case to have been diverted and misapplied were the assets of an insolvent corporation, and that the funds had been deposited in the bank by a receiver appointed by an order of the superior court, which provided that such funds should only be paid out on checks signed by the receiver and countersigned by the judge, of which order and the provisions thereof the bank had knowledge, the creditors of the corporation, to whom the receiver sustained a fiduciary relation, would have had the right to enforce the liability incurred by the bank because of having paid out such funds upon checks not countersigned as provided.

2. Subrogation—Surety—Rights of Creditors.

But when the creditors, or the obligee in a bond given by the receiver for the faithful performance of his duties relating to the funds, upon a breach of trust by the receiver, participated in by the bank, brought suit and recovered judgment against the receiver and the surety on the bond, and the surety paid the judgment, such surety is subrogated to the rights of the creditors to enforce the liability incurred by the bank on account of its participation in the breach of trust by the fiduciary.

[Ed. Note.—For cases in point, see Cent. Dig. vol. 44, Subrogation, §§ 17, 18.]

3. Limitation of Actions.

It appearing that the right of action against the defendant, once existing in favor of the parties to whose rights the plaintiff in this case is subrogated, is barred by the statute of limitations, the right of action upon the part of the plaintiff is also necessarily barred. (Syllabus by the Court.)

Error from Superior Court, Bibb County; Robt. Hodges, Judge.

Actions by the Fidelity & Deposit Company of Maryland against the American National Bank of Macon and by the same plaintiff against the Exchange Bank of Macon. Demurrers to the petitions were overruled, and defendants bring error. Reversed.

The Fidelity & Deposit Company of Maryland, hereinafter called the "Fidelity Company, " brought separate actions against the American National Bank of Macon, Ga., hereinafter called the "National Bank, " and against the Exchange Bank of Macon, Ga., hereinafter designated as the "Exchange Bank, " alleging substantially the same matters of complaint in both petitions. In each case the defendant bank filed general and special demurrers, which demurrers were overruled, and the defendants excepted. The issues presented by the bills of exceptions in. the two cases are identical, and will be decided together, as a decision in one case willnecessarily control the decision in the other.

The petitions of the Fidelity Company allege the following material facts: In December, 1893, H. C. Tindall and others, owners of all the capital stock of the Macon Hardware Company, hereinafter called the "Hardware Company, " a private corporation, filed their petition to the superior court of Bibb county, alleging the insolvency of the Hardware Company, and praying that a receiver be appointed to administer the assets of the corporation for the benefit of its creditors. The Hardware Company and its creditors, including the National Bank and the Exchange Bank, were made parties defendant to this petition. Thereafter the Exchange Bank, the National Bank, and numerous other creditors of the Hardware Company entered their appearance in said suit, set up certain claims against the Hardware Company, and asserted their rights to share in the distribution of its assets. On January 9, 1894, the court passed an order appointing said Tindall permanent receiver of the Hardware Company, and designated certain banks, among them the Exchange Bank and the National Bank, as depositories to receive, hold, and disburse the funds of the receivership, "provided that the said banks will pay the customary rates of interest on such deposits at the rate of 5 per cent, per annum, if left in the banks for six months, and no interest to be charged for the last 30 days prior to said money being checked out; each bank to have 30 days' notice of the intention to check." Said order also provided that "the said receiver is hereby authorized and directed to make his deposits as aforesaid in his name as receiver, and no checks shall be drawn against said deposits, except in his name as receiver, countersigned by the judge presiding of this court, except that checks drawn for expenses may be drawn without being countersigned by the judge as aforesaid, but the said checks shall specify for what expenses drawn." The Exchange Bank, the National Bank, and certain other named banks accepted said designation as depositories under the terms of said order, and the Fidelity Company became security upon the bond of the receiver.

It is alleged in the petition that, by virtue of said order of the court and the acceptance of the terms of said order by the Exchange Bank, the National Bank, and the other named banks, said banks so designated as depositories agreed with the court and with the creditors of the Hardware Company not to pay out the funds so received, except on checks drawn by the receiver and countersigned by the judge of the superior court, unless said checks were drawn for expenses and so specified; that the Exchange Bank and the National Bank failed and neglected to comply with the requirements of the aforesaid order of the court, and paid, out of the funds deposited with them, various sums, aggregating $2,901.53 and $475.44, re spectively, upon checks signed by "H. C. Tindall, receiver"; that none of said checks had upon them any statement with reference to expenses, and were not countersigned by the judge, as provided in said order; and that the receiver appropriated the money so withdrawn to his own use, and has never accounted for the same. On the 22d day of February, 1901, a judgment was entered in favor of a number of the creditors of the Hardware Company, decreeing that said creditors should be entitled to participate in the distribution of the assets of the receivership in the hands of said receiver; and said receiver failed to account to the court for the sum of money which he had withdrawn from said depositories and misappropriated as above set forth. Thereaft^: er, on March 26, 1901, R. A. Nisbet, clerk of the superior court, the obligee in the receiver's bond, brought suit, for the use of the creditors of the Hardware Company, on said bond, against Tindall, receiver, as principal, and the Fidelity Company, as security, to recover the amount for which Tindall as receiver failed to account when required by the court to do so, which amount was composed in part of the sum of $2,901.53 which had been withdrawn from the Exchange Bank and misappropriated by the receiver, and the sum of $475.44 which had been withdrawn from the National Bank in a like manner and misappropriated. Judgment against Tindall, receiver, and the Fidelity Company, security, was obtained on January 9, 1903, and on the 8th day of February, 1904, the judgment was paid in full by the Fidelity Company.

Petitioner alleges that the Exchange Bank and the National Bank knew that the drawing of said checks, the same not being for expenses and not countersigned by the judge, was unauthorized by the decree or order of the court, and said banks thereby enabled said receiver to commit a breach of trust by misappropriating the money so obtained; that the creditors of the Hardware Company had a right to recover from the banks the sums of money which had been paid out on said checks; and that, having paid the judgment rendered against it, as security on the receiver's bond, in favor of such creditors, it is subrogated to the rights of said creditors as against the Exchange Bank and the...