Blackburn's Adm'X v. Union Bank & Trust Co.
| Decision Date | 04 June 1937 |
| Citation | 269 Ky. 699 |
| Court | Supreme Court of Kentucky |
| Parties | Blackburn's Administratrix et al. v. Union Bank & Trust Co. |
1. Appeal and Error. — Where chancellor's findings are supported by substantial evidence and evidence is such as to leave the mind in doubt concerning truth of controversy, finding of chancellor will not be disturbed.
2. Banks and Banking. — Where bank president charged borrowers from bank a service charge in name of bank for examining title, preparing mortgages, etc., from which he retained the profits, profits, if proper, belonged to bank, and if not proper, to borrowers and not to president.
3. Banks and Banking. — Where bank president unknown to bank charged borrowers from bank a service charge in name of bank for examining title, preparing mortgages, etc., from which he retained the profits, bank would not be precluded from recovering profits from president on ground that service charge was excessive or usurious and that by attempting to recover profit bank ratified the charges.
4. Appeal and Error. — Finding of commissioner, confirmed by chancellor, will not be disturbed by appellate court, though court may be disposed to doubt its correctness.
5. Banks and Banking. — Where bank president unknown to bank charged borrowers from bank a service charge in name of bank for examining title, preparing mortgages, etc., from which he retained the profits, money collected was bank's money and not money of borrowers, when it was misappropriated.
6. Principal and Agent. — An agent who makes a profit in connection with transactions conducted by him on behalf of the principal is under duty to give such profits to principal unless otherwise agreed.
7. Principal and Agent. — An agent may not use his position to obtain personal profit without consent of his principal.
8. Usury. — A lender may lawfully require a borrower to pay actual and reasonable costs of examining and appraising security for the loan.
9. Banks and Banking. — Where bank president unknown to bank charged borrowers of bank a service charge in name of bank for examining titles, preparing mortgages, etc., from which he retained the profits, bank would not be precluded from recovering profits from president on ground that bank was without authority to engage in examination of title as a business, where charge was reasonable and major portion was made for purpose of paying attorney.
10. Banks and Banking. — Where bank president unknown to bank charged borrowers from bank a service charge in name of bank for examining titles, preparing mortgages, etc., from which he retained the profits, maxim that in case of equal fault, the condition of the party in possession is the better one was no defense to suit by bank to recover profits, since bank was not in equal guilt and its attempt to recover profits did not make it so.
11. Limitation of Actions. — Suit by bank to recover from its president profits which he had retained from service charges made in name of bank for examining title, preparing mortgages, etc., was not barred by limitations, where bank did not discover, and could not by reasonable diligence, have discovered misappropriations until shortly before suit was brought (Ky. Stats., sec. 2515).
Appeal from Fayette Circuit Court.
WOODWARD, DAWSON & HOBSON, HUNT & BUSH and J. W. CAMMACK for appellants.
ALLEN, BOTTS & DUNCAN for appellee.
Affirming.
This is an appeal from a judgment of the Fayette circuit court sitting in equity. Appellants' decedent. E.R. Blackburn, was for many years the cashier, and later president, of the appellee, Union Bank & Trust Company. He was the chief executive and active managing officer of the bank. A considerable portion of the business transacted by the bank consisted of loans secured by mortgages on real estate. This portion of the bank's business was handled almost exclusively by Mr. Blackburn. Subject to the approval of the board of directors, he decided whether a loan should be made and determined the sufficiency of the security and the validity of the mortgagor's title. About the year 1920, Mr. Blackburn conceived a plan whereby he could make a personal profit out of these mortgage loan transactions. Instead of referring to an attorney for the bank the duty of examining and passing upon the sufficiency of the titles of prospective borrowers or permitting borrowers to employ their own attorneys to furnish an abstract and report on the title, he required the borrowers to pay a service charge to cover what, in his opinion, was a sum sufficient for examining the title, preparing the mortgages, appraisements of the property, and for other incidental expenses. The record indicates that at some time shortly prior to 1920 the Fayette County Bar Association had adopted a scale of fees to be charged for title examinations and that Mr. Blackburn adopted this scale as the basis for the greater part of the service charge which he required the borrowers to pay. He customarily employed a regular practicing attorney of the Fayette County Bar to examine and report on the titles, and paid him a fixed fee of $10 for each title examined. Similarly, he paid a stenographer in the bank for her services in preparing the mortgage and tending to other details in connection with the transaction, and he paid $1 to one of the other bank officials to cover the expense of visiting and inspecting the properties to be mortgaged for the purpose of making an appraisal. He paid the county clerk the regular recording fee of $2 for recording the mortgage, and he pocketed the balance of the service charge.
The evidence indicates that in a number of instances the service charge was withheld from the loan, the borrower being credited on the books of the bank with the face amount of the note given, less the service charge. The amount of the service charge would be withdrawn from the note teller's cash in order to balance the books of the bank and would be distributed in cash by Mr. Blackburn as above indicated. In other instances, borrowers gave Mr. Blackburn a check payable to the bank for the amount of the service charges. So far as the record discloses, in none of these instances was a check made payable to Blackburn himself. Mr. Blackburn would customarily take these checks to the note teller and get the cash on them without an indorsement and would follow the same procedure in making a distribution of this cash, converting the major portion to his own use. In a few instances the borrowers paid the amount of the service charge in cash, but in no instance is it shown that this payment was to Blackburn personally and not as agent for the bank.
The commissioner found that Mr. Blackburn concealed from the bank that he was making a personal profit from these transactions. It is difficult to reach any other conclusion from the circumstances here presented. On April 1, 1929, two of the directors of the bank learned of Blackburn's practice in the handling of service charges and immediately confronted him and demanded that he desist. Mr. Blackburn agreed to stop, but a few months later it was discovered that he had renewed the practice. The matter was thereupon laid before the board of directors and it was discovered that Mr. Blackburn had followed a scheme of personal aggrandizement at the expense of the bank and its borrowers for a number of years. Demand for restitution was made and refused, and Mr. Blackburn's resignation and this suit for an accounting followed.
The petition sets forth at length various loan transactions, the amount of the service charge collected in each instance, the disbursements therefrom to persons other than Blackburn, and the amount converted by Blackburn to his own use. It is alleged that Blackburn collected these sums as agent for the bank for services rendered the borrowers by him as agent for the bank and that he had unlawfully converted the portions of the service charges set out.
In his answer, Mr. Blackburn did not deny the correctness of the service charges as alleged, nor the correctness of the disbursements made therefrom to others than himself. In many instances he admitted, by not denying, the conversion of the portions of the service charges as alleged. In some instances he denied converting any portion of the charge, and in other instances denied converting any portion in excess of a certain sum. He did not undertake, however, to show how he had distributed the portion of the service charges which he denied appropriating to his own use. He denied that the service charges had been collected by him as agent for the bank or that he rendered any services to the borrowers as agent for the bank. He alleged that the charges collected by him were reasonable for the services rendered, including his own services. The answer pleaded affirmatively that the directors had full knowledge of, and had consented to, the acts complained of, and the five-year s...
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