Brown v. Maguire's Real Estate Agency

• Decision Date: 05 January 1937
• Docket Number: No. 23676.,23676.
• Citation: 101 S.W.2d 41
• Parties: BROWN et al. v. MAGUIRE'S REAL ESTATE AGENCY et al.
• Court: Missouri Court of Appeals

101 S.W.2d 41

BROWN et al. v. MAGUIRE'S REAL ESTATE AGENCY et al.

No. 23676.

St. Louis Court of Appeals. Missouri.

January 5, 1937.

Rehearing Denied January 29, 1937.^*

Appeal from St. Louis Circuit Court; H. A. Hamilton, Judge.

"Not to be published in State Reports."

Action by Elizabeth Drew Brown and others against Maguire's Real Estate Agency and another, in which the First National Bank in St. Louis was summoned as garnishee after issuance of execution on a judgment for plaintiffs and Roy Rutherfurd and others intervened as claimants of the proceeds of a check deposited with garnishee by named defendant. From a judgment for plaintiffs against the garnishee, the latter and intervening claimants appeal.

Reversed and remanded, with directions.

Wm. H. Killoren, of St. Louis, for appellants Roy Rutherfurd and others.

Salkey & Jones and Sam Elson, all of St. Louis, for appellants Rutherfurd Bingham and others.

Fordyce, White, Mayne & Williams, of St. Louis, for appellant Joseph R. Long, Jr.

Leahy, Saunders & Walther and J. L. London, all of St. Louis, for respondents.

SUTTON, Commissioner.

On November 26, 1932, a judgment was rendered in the circuit court of the city of St. Louis in favor of plaintiffs and against the defendants for the sum of $4,341.36. Afterwards, an execution was issued on this judgment, and on January 4, 1933, the First National Bank in St. Louis was summoned as garnishee. The bank immediately initiated an investigation of its records to determine what assets of the defendants were in its possession. This investigation continued through January 5, 1933. By this investigation it was ascertained that on January 4, 1933, defendant Maguire's Real Estate Agency had to its credit the sum of $93.65, and that defendant James H. Maguire had to his credit the sum of 40 cents.

On January 5, 1933, the bank mailed a letter to the Maguire's Real Estate Agency, notifying the Agency of the garnishment. This letter apparently did not reach the Agency until January 6, 1933. On January 5, 1933, the Maguire's Real Estate Agency, not as yet having been advised of the garnishment, made a deposit to its account in the bank of $4,093.50. This deposit included a check drawn by the Middleton Theatre Company on said bank in the sum of $4,000, payable to the Maguire's Real Estate Agency. This check represented the payment of three months' ground rent on property owned by the intervening claimants, located at the south-east corner of Sixth and Market streets in St. Louis, which rent was being collected by the Maguire's Real Estate Agency on behalf of said claimants.

On January 4, 1933, the garnishee bank held a note of the Maguire's Real Estate Agency in the sum of $4,000, executed by said Agency on November 30, 1932, and indorsed by James H. Maguire. This note is made payable "on demand, and if no demand be made, then on the first day of February, 1933." Attached to the note is an agreement to the effect that in the event of the issuance of an attachment, garnishment, or execution, against the Agency, "the note shall, at the option of the bank, immediately mature and become forthwith due and payable," and the bank shall have the right to offset the note against "any balance of bank deposit then on deposit with the bank" to the credit of the Agency, and the bank may apply such balance to the payment of the note. The note is secured by collateral in the form of two notes secured by deeds of trust in the sum of $3,500 each.

On February 6, 1933, the intervening claimants, 15 in number, filed claims to that portion of the deposit of the Maguire's Real Estate Agency, made on January 5, 1933, which represents the proceeds of the $4,000 rental check drawn by the Middleton Theatre Company in favor of the Agency for the ground rent on the property owned by said claimants.

The controversy resolves itself into three conflicting contentions respecting the Maguire's Real Estate Agency account, as follows: (1) The plaintiffs contend that by virtue of their garnishment they are entitled to the full amount of the account to be applied in satisfaction of their judgment; (2) the garnishee bank contends that it is entitled to $4,020 to be applied in satisfaction of the Maguire's Real Estate Agency note including unpaid accrued interest to February 1, 1933, on which date the bank by indorsement on the note applied so much of the Agency's account to the payment of the note; and (3) the intervening claimants contend that they are entitled to the $4,000 which represents the proceeds of the rental check.

On November 6, 1933, the cause was tried before the court, without a jury. On December 12, 1934, the court entered its order finding that the garnishee bank was indebted to Maguire's Real Estate Agency in the sum of $4,187.15 and to James H. Maguire in the sum of 40 cents, and directed the garnishee bank to pay said sums within three days into the registry of the court. On December 19, 1934, the garnishee bank having failed to comply with this order, the court entered judgment in favor of plaintiffs against the garnishee bank for the sum of $4,187.55. The garnishee bank and the intervening claimants appeal.

There is no substantial dispute as to the facts. The Maguire's Real Estate Agency, a common-law trust, for many years collected the rentals on the property at Sixth and Market streets, in the city of St. Louis. This property, which is known as the Grand Opera House property, was originally owned by Thomas Rutherfurd, whose heirs are the claimants herein. The property was under a 99 year lease at a net rental of $16,000 per year, payable quarterly. The Maguire's Real Estate Agency had been continuously collecting these rentals for many years prior to the commencement of this garnishment proceeding, and also had continuously made distribution of these rentals to the various heirs who are the claimants herein in proportion to their respective interests in the property.

The Middleton Theatre Company, the lessee of the property, paid the $4,000 quarterly rentals by checks drawn on the garnishee bank and made payable to the Maguire's Real Estate Agency. The Agency, acting through its president, James H. Maguire, would deposit these quarterly rental checks of $4,000 each as they were received to the account of the Agency in the garnishee bank, and would shortly thereafter distribute the proceeds thereof by purchasing New York exchange at the garnishee bank payable to those of the claimants who lived in the East and by the checks of the Agency itself to those of the heirs who lived in St. Louis, or in that vicinity.

The present litigation, so far as the claimants are involved, arises by virtue of the deposit of the rental check of $4,000, made on January 5, 1933.

The claimants contend that the $4,000 collected by the Maguire's Real Estate Agency as their agent was a trust fund belonging to the claimants, and that the deposit of the fund in the garnishee bank by the Maguire's Real Estate Agency in its own name did not destroy the trust relationship existing with respect to the fund between the Agency and the claimants, so as to entitle the plaintiffs or the garnishee bank to subject the fund to the payment of the individual debt of the Agency. On the other hand, the garnishee bank contends that assuming that the $4,000 was a trust fund belonging to the claimants, the bank nevertheless was entitled to apply the fund to the payment of the debt owing by the Agency to the bank represented by the Agency note for $4,000 held by the bank, since the bank had no knowledge or notice that the fund deposited with the bank by the Agency in its own name was a trust fund belonging to the claimants. However, both the bank and plaintiffs contend that the $4,000 collected by the Agency was not a trust fund in the hands of the Agency belonging to the claimants, but that the relation of debtor and creditor existed respecting the fund between the Agency and the claimants.

It is now a well-settled rule that, where a trustee deposits the trust fund with a bank to his own individual account, the bank cannot use the fund to pay the individual debt of the trustee due to the bank when the bank has knowledge that the fund does not belong to the trustee personally but is held by him in his capacity as trustee. The same rule applies where a bank, although having no actual knowledge of the character of the fund deposited with it, has knowledge of facts or circumstances such as are sufficient to put the bank upon inquiry with respect to the character of the fund. Johnson v. Payne & Williams Bank, 56 Mo.App. 257, 263; Clark v. First National Bank of Harrisonville, 57 Mo.App. 277; Horigan Realty Co. v. First National Bank, 221 Mo.App. 329, 273 S.W. 772; Tierman v. Security Bldg. & Loan Ass'n, 152 Mo. 135, 53 S.W. 1072; Richardson v. St. Louis National Bank, 10 Mo.App. 246, loc. cit. 249; United States v. Butterworth-Judson Corp., 267 U.S. 387, 45 S.Ct. 338, 69 L.Ed. 672; Union Stock-Yards National Bank v. Gillespie, 137 U.S. 411, loc. cit. 415, 11 S.Ct. 118, 119, 34 L.Ed. 724; Shotwell v. Sioux Falls Savings Bank, 34 S. D. 109, 147 N.W. 288, L.R.A.1915A, 715; Union Stock Yards National Bank v. Moore (C.C.A.) 79 F. 705, loc. cit. 706; Central National Bank v. Connecticut Mutual Life Ins. Co., 104 U.S. 54, 26 L.Ed. 693; Bank of Guntersville v. Crayter, 199 Ala. 599, 75 So. 7, L.R.A.1917F, 460.

In Johnson v. Payne & Williams Bank, supra, the court said: "It may be stated as a rule, deducible from many authorities, that a bank cannot use a deposit to pay the individual debt of the depositor due to it, when it has knowledge that the deposit is held by the depositor in a fiduciary capacity and does not belong to him personally."

In L.R.A.1915A, at page 716, the reviewer states the rule as follows: "Of course, where the facts of the case are such that, although the bank did not have actual notice of the interest of a third person in the deposit, it is put upon...