Bank of Hartford v. McDonald

• Decision Date: 03 March 1913
• Citation: 154 S.W. 512
• Parties: BANK OF HARTFORD v. McDONALD et al.
• Court: Arkansas Supreme Court

154 S.W. 512

BANK OF HARTFORD v. McDONALD et al.

Supreme Court of Arkansas.

March 3, 1913.

Appeal from Sebastian Chancery Court; J. V. Bourland, Chancellor.

Action by the Bank of Hartford against A. A. McDonald and another. From the judgment, plaintiff appeals. Reversed and remanded, with directions.

This action was instituted by the Bank of Hartford to recover the sum of $2,141.66 upon a promissory note, executed on September 9, 1907, to the bank by appellees A. A. McDonald, M. L. Croom, and by one Joseph M. Spradling, who was the president of the bank, but died before the institution of the suit, and his administrator was made a party defendant. The note sued on was as follows: "($2,141.66) Hartford, Ark., Sept. 9, 1907. Ninety days after date, without grace, we promise to pay to the Bank of Hartford or order, at the banking house of said bank, in Hartford, Ark., for value received, twenty-one hundred forty-one & 66/100 dollars, with interest at the rate of ten per cent. per annum from maturity until paid. The makers of this note hereby severally waive presentation for payment, notice of nonpayment, protest and consent that time of payment may be extended without notice thereof. A. A. McDonald. Jos. M. Spradling. M. L. Croom."

In their answer appellees admitted the execution of the note sued on; but they allege that said note was given for money loaned to them and Spradling, for the purpose of buying certain real estate in the town of Hartford, in Sebastian county. They further alleged that at the time of said loan Spradling was in entire charge of the business of the bank, and that it was agreed the title to the property should be taken in the name of Spradling, and that he should have the right to rent, sell, or otherwise dispose of it, and that any money derived from the property should be deposited in the bank for its protection, and that this money should be applied, first to the payment of the note sued on; second, to the discharge of a mortgage on said property; and, third, that the surplus, if any, less the expense of management, should be divided equally between the three makers of the note.

The property purchased belonged to the estate of Rogers and Stefani, which was being administered in bankruptcy at the time. Appellee McDonald was the attorney for certain claimants and filed the petition for the petitioning creditors, and appellee Croom was the trustee in bankruptcy, and at this sale Spradling was the purchaser, and the deed was made to him individually. The purchase price of the property was $7,000, and at the time of the sale the property was incumbered by a mortgage to the Arkansas Valley Trust Company for $4,000 and interest. This mortgage was discharged and balance of purchase money paid out of the proceeds of the note in suit and a loan of $5,000 made by one John Goset, and secured by a mortgage on the property. This mortgage in favor of Goset was foreclosed by a suit in the chancery court, brought for that purpose, and all of the property was sold, and that sale was confirmed.

The testimony on the part of the appellees was to the effect that they had signed Spradling's note as sureties, and that Spradling had complete control of the property and collected a considerable sum of money, and sold one of the lots for $500, of which $100 was cash, and that the balance of $400 of purchase money was evidenced by a note, which was assigned to the bank, and that Spradling deposited to his individual account all sums of money collected from the sale or rental of the property.

There appears to be no real question but that, as among the makers of the note, these were trust funds; but the real question is as to the bank's liability for their misuse. It appears that Spradling exercised considerable influence in shaping the policy of the bank and that his son was its cashier; and it appears, further, that appellees were not called upon to pay any interest on the note until after Spradling's death. Neither the bank nor Spradling ever at any time rendered appellees any statement of this account; in fact, Spradling had but one account at the bank, and these funds were deposited as a part of his general account there. It is not contended that the bank was ever asked to furnish appellees any statement of the account, although Croom testified that Spradling told him that the property was bringing in a pretty fair income, and that if he and McDonald desired he would furnish them an itemized statement. This request was not made, and the statement was not furnished.

The only proof of the bank's knowledge of the source of these funds and their intended use is the fact that Spradling was its president and gave its affairs his personal attention, and appeared to have had much to do with its general policy, and the fact that his son was the cashier, and the two letters written by McDonald to the bank, which will be set out in full, and the bank's failure to require appellees to pay interest. McDonald undertook to sell his interest in the deal to Spradling for $250; but Spradling refused to buy, but instead authorized the bank to make McDonald an individual loan. This note was not paid at its maturity, and the bank wrote the following letter to McDonald:

                              "Hartford, Ark., 11-21-08
                

"A. A. McDonald, Fort Smith, Ark. — Dear Sir: Having heard nothing from my notice sent you in regard to your past due note of $250, due December 30, 1907, will say I must insist on you letting me know, as I will proceed at once to collect same some other way. Resp. J. L. S.

"(Index.) Your credit at this bank will depend largely on the attention that note receives at maturity, which has not received any. J. L. S."

And he wrote the following letters to the bank:

                                 "November 21, 1908
                

"Bank of Hartford, Hartford, Ark. — Gentlemen: I am sorry that I did not receive your notice promptly, but have been absent from the office for several days. I enclose check for $6.25 to pay interest on my note. Thanking you, I am, Yours truly, ____.

                                   "November 28, 1908
                

"The Bank of Hartford, Hartford, Ark. — Gentlemen: Your letter of the 21st inst. with some name attached which I cannot make out and which, in view of the relation existing and the explanation I made in my letter of the 21st. I consider rather insulting, is not understood, as I sent you check at that time for $6.25 to pay interest for 90 days; perhaps, however, I should have explained to you at that time that this loan was made with your Mr. J. M. Spradling, president of your bank, with the understanding that he would carry it for me until the Stefani property was disposed of, unless something unforeseen happened, but on account of the relations between Mr. J. M. and Luther Spradling of your bank, I presume the matter was understood by all. As I notice you letter is dated November the 21st, I presume you have received my check since you wrote it. Yours truly, ____."

These letters, above referred to, appellees say, in connection with the other evidence in the case, imputed to the bank the knowledge that Spradling was handling trust funds, and imposed upon it the duty of seeing that they were not misappropriated. It is not contended that Spradling's son, the cashier, had any knowledge of these transactions, except in so far as knowledge would be imputed to him from the above facts and such inferences as would arise from their existence. Upon the contrary, appellees admit that the note was executed at the office of McDonald in Ft. Smith; and McDonald testified that when he...