Bowne v. Lamb
| Decision Date | 02 November 1937 |
| Docket Number | 8584. |
| Citation | 193 S.E. 563,119 W.Va. 370 |
| Parties | BOWNE et al. v. LAMB. |
| Court | West Virginia Supreme Court |
Submitted September 22,1937.
Syllabus by the Court.
1. "In a controversy, between a depositor and the receiver of an insolvent banking institution, whether a particular account of deposits constitutes a trust or a debt, the fact that the contract between the depositor and the bank required the latter to pay interest on the account is controlling in determining that the deposit constituted merely a debt and not a trust, in the absence of evidence clearly showing that the parties intended to establish a trust, notwithstanding the requirement of payment of interest on the fund." Cambridge Gas Co. et al. v. Lamb, 117 W.Va. 174, 184 S.E. 566.
2. A deposit in a bank by a trustee is presumptively a debt and not a trust. Where a trustee, in making a deposit of trust funds, does not specify that the funds shall be kept intact and separate from other funds of the bank and the agreement under which the deposit is made provides for the payment of interest thereon, these facts, of themselves, show an intention of the parties to create a debt and not a trust. In the absence of a showing that the deposit was made ex maleficio or that the bank was insolvent at the time the deposit was made, the trustee and his cestuis que trustent will not be entitled to a preference over general depositors of the bank, should the bank later become insolvent.
Appeal from Circuit Court, Kanawha County.
Suit by S.W. Bowne and others against F. O. Lamb, receiver of the Charleston Trust Company. Decree for plaintiffs, and defendant appeals.
Reversed and remanded, with directions.
Mohler Peters & Snyder, of Charleston, for appellant.
Price Smith & Spilman and Jackson D. Altizer, all of Charleston for appellees.
Plaintiffs, S.W. Bowne, in his own right, S.W. Bowne, trustor, Mrs. Katharine B. Smith, and Mrs. Alice B. Azbill, filed this suit in equity against F. O. Lamb, receiver of Charleston Trust Company, a corporation, trustee, in the court of common pleas of Kanawha county, W. Va., for the purpose of establishing a relationship of cestuis que trustent and trustee between the plaintiffs and the defendant in reference to a certain account in said Charleston Trust Company, amounting to $13,423.01. From a final decree of the circuit court of Kanawha county, affirming a decree of the court of common pleas in favor of the plaintiffs, the defendant appeals.
On September 21, 1926, the Charleston Trust Company, a banking corporation organized under the laws of this state, entered into a written agreement with the plaintiff, S.W. Bowne, in which agreement the former was designated as "Trustee" and the latter, as "Trustor." This writing was executed on behalf of the trust company, as trustee, by Harrison B. Smith, its president. It provides, in part:
"Compensation of Trustee
The Trustee shall be entitled to no compensation for all services rendered by it except the indirect compensation hereinafter provided for, but shall be reimbursed for all expenses and liabilities incurred or sustained, which shall be a first lien upon the trust estate.
The Trustee shall be accountable to the Trustor and beneficiaries named hereunder only for the principal of the trust estate and interest thereon at the rate of four and one-half per cent. (4 1/2%) per annum, compounded semi-annually on the first days of January and July of each year, any amount of earnings of the trust funds in addition to the four and one-half per cent. (4 1/2%) to be accounted for to the Trustor and beneficiaries, shall be retained by the Trustee as compensation for services.
This trust is for the benefit of S.W. Bowne, Mrs. Katharine B. Smith and Mrs. Alice Azbill, hereinafter called 'Beneficiaries', and shall be held and disposed of as follows:
Withdrawals by Beneficiaries
(1) The said S.W. Bowne shall withdraw all or any part of the principal or accrued interest of the trust estate at any time, by executing and delivering an order, or orders, to said Trustee. In the event of the death of the said S.W. Bowne, the disposition of any monies in the trust estate shall be subject to the order of the said Mrs. Katharine B. Smith and Mrs. Alice B. Azbill.
(2) There shall be no liability upon the Trustee for any such payments to the Beneficiaries, or for the account of the Beneficiaries."
At this point it may be well to state the background which gave rise to this agreement. S.W. Bowne, Sr., the father of plaintiff died seized of property in Brooklyn, N. Y., which, under his will, was devised to the plaintiffs, S.W. Bowne, Jr., Mrs. Alice B. Azbill, and Mrs. Katharine B. Smith, the latter being the wife of the said Harrison B. Smith, the then president of Charleston Trust Company. This property was leased, and S. W., Jr., had the management thereof in the interest of himself and his two sisters. For the purpose of establishing a sinking fund to avoid any call upon the owners for taxes and other purposes, should an emergency arise, it was understood between them that 15 per centum of the rents from the property would be withheld from distribution, and deposited with the Charleston Trust Company, under the agreement to which we have already referred. All payments into the fund were from rents received from the real estate, the deposits being made payable to the trust company, account of S.W. Bowne, trustee. No passbook was issued by the bank, but statements were rendered to the plaintiff Bowne. Under this agreement, only two withdrawals from the fund were made, both on March 31, 1933, each representing payment to Spencer, Ordway & Wierum, a New York law firm, for legal services and expenses in connection with the formation of a holding company to take title to said real estate. These checks were countersigned by A. W. Flournoy, trust officer of Charleston Trust Company. Such countersigning was not specified in or required by the agreement. The testimony shows that the provision for withdrawals was inserted in the agreement so that, if any emergency arose and taxes or insurance were not paid by the tenant, the said S.W. Bowne, trustor, could withdraw in order to pay such taxes or insurance. After the execution of the agreement, Harrison B. Smith, as president of the trust company, by letter dated September 23, 1926, advised A. W. Flournoy, the bank's trust officer, that the agreement, two executed copies of which were inclosed, had been executed; and instructed him to return one copy of the agreement to the plaintiff Bowne, "with some deposit slips and a few checks." In this letter he stated that the trust officer should decide whether Bowne should have a passbook or whether statements would be furnished every six months. The letter further provides: "If consistent, I think the statements are better, as we are regarding it not as a deposit but as a trust." In this letter, Mr. Smith recommended that the trust officer purchase certain securities then owned by the investment department of the bank. The letter, however, concludes with the suggestion that the trust officer consult with Homer Hanna, the executive vice-president of the bank, as to the matter of bookkeeping.
Under the agreement, the first payment in the amount of $187.50, without the knowledge of the trust officer, was received by the commercial side of the bank. In November, 1926, a second payment in like amount was received by the trust officer and entered by him in the trust department books. Because of Hanna's instructions, no further payments were recorded in the trust department books and the fund thereafter was carried in the savings department under the name of "S. W. Bowne, Trustee." During the course of two audits, the deposit was not shown in the records of the trust department.
The trust company, prior to 1933, was not accustomed to file a tax return for trust estates other than the estates of decedents. As the result of a bulletin issued by the State Tax Commissioner cautioning trust companies to obey the law, on January 1, 1933, the trust company, through its trust officer, made a property tax assessment for that year in the name of Charleston Trust Company, trustee for S.W. Bowne, on personal property valued at $13,060. Before any other returns were due, the bank failed.
The case comes to us on bill of complaint, demurrer, answer, and proof. Evidently the demurrer was not relied on by counsel for the appellant before this court. The sole question to be considered is whether or not, under the pleadings and proof, the relationship between Charleston Trust Company and the plaintiffs was one of bank and depositor, or trustee and cestuis que trustent. In other words, as propounded by Judge Maxwell in Cambridge Gas Co. v. Lamb, Receiver, 117 W.Va. 174, 184 S.E. 566, the question is: "Are we dealing with a trust or a debt?" As heretofore indicated, both the circuit court and the court of common pleas held that a trust had been created.
The solution of the problem under consideration is to be found in the manifested intention of the parties. Cambridge Gas Co. et al. v. Lamb, supra; Am.Law Inst., Restatement of the Law of Trusts, p. 42, § 12; Federal Reserve Bank of Richmond v Peters, 139 Va. 45, 123 S.E. 379, 42 A.L.R. 742; Goodrich v. City National Bank & Trust Co.,...
To continue reading
Request your trial