Charleston Paint Co. v. Exchange Banking & Trust Co.

• Decision Date: 07 August 1924
• Docket Number: 11566.
• Citation: Charleston Paint Co. v. Exchange Banking & Trust Co., 129 S.C. 290, 123 S.E. 830 (S.C. 1924)
• Parties: CHARLESTON PAINT CO. v. EXCHANGE BANKING & TRUST CO.
• Court: South Carolina Supreme Court

123 S.E. 830

129 S.C. 290

CHARLESTON PAINT CO. v. EXCHANGE BANKING & TRUST CO.

No. 11566.

Supreme Court of South Carolina

August 7, 1924

Appeal from Common Pleas Circuit Court of Charleston County; Hayne F. Rice, Judge.

Action by the Charleston Paint Company against the Exchange Banking & Trust Company.Judgment for defendant, and plaintiff appeals.Reversed and remanded.

Lionel K. Legge, of Charleston, for appellant.

Mitchell & Horlbeck, of Charleston, for respondent.

COTHRAN J.

Action to recover the proceeds of a certain check drawn by L. D Long & Co. upon South Carolina Loan & Trust Company, payable to Charleston Paint Company, dated April 1, 1920, for $974.55, deposited by W. L. Rodrigues with the defendant bank, and passed to his credit as attorney under the following circumstances:

In March, 1920, Charleston Paint Company placed in the hands of W. L. Rodrigues, an attorney, for collection, an account against L.

D.Long & Co.He presented the claim to Long & Co. and received in payment thereof the check above described.For some reason not explained, Long & Co. drew the check payable to the order of Charleston Paint Company.On April 3, 1920, Rodrigues, as the plaintiff alleges, altered the check by inserting in his own handwriting, over the name of the payee, the words "W. L. Rodrigues, Atty. for," making the check payable to "W. L. Rodrigues, Atty. for Charleston Paint Co."He then indorsed the check: "For deposit a/c W. L. Rodrigues, Atty. for Charleston Paint Co.W. L. Rodrigues, Atty."

Rodrigues had in the bank two deposit accounts--one in his individual name, and the other in his name as attorney.He had none in his name as attorney for Charleston Paint Company.At the time of making the deposit he made out a deposit slip, directing the bank to pass the check to the credit of his account as attorney, which was done.The check was duly passed by the defendant bank through the clearing house and paid by the South Carolina Loan & Trust Company upon which it was drawn.Between April 3, 1920, and June 16, 1920, Rodrigues drew out the entire deposits to his credit and was overdrawn $47.04, all of which he had appropriated to his own use, having remitted to his client nothing on account of the collection.

The plaintiff then in February, 1921, having ascertained the foregoing facts, brought this action against the defendant, the collecting bank, to recover the amount so collected, basing its action upon two grounds: (1) That the bank knew or should have known, from the form, appearance, and contents of the check, that it had been altered and that the proceeds belonged to the payee.(2) That the bank failed to comply with the terms of the indorsement which required the deposit to be made upon the account of Rodrigues as attorney for the plaintiff.

It is apparent from a bare inspection of the check that it was originally drawn payable to the order of Charleston Paint Company.It is equally apparent that some one, in a different handwriting, with a different colored ink, and at some unascertained time, inserted upon the face of the check the words indicated.It is possible that this was done by authority of the parties to the note; it is also possible that it was a bald forgery, made with a preconceived purpose on the part of Rodrigues to get possession of the money and embezzle it.So that two possible theories are presented: (1) That the check was passed from Long & Co. to Rodrigues in its present condition, payable "to the order of W. L. Rodrigues, Atty. for Charleston Paint Co."; or (2) that, after it was passed by Long & Co. to Rodrigues, payable "to the order of Charleston Paint Co.," it was altered without authority by the insertion of the words above referred to, making it payable "to the order of W. L. Rodrigues, Atty. for Charleston Paint Co."

Both theories depend upon issues of fact which this court is powerless to determine.It becomes necessary therefore to declare the law applicable to them severally.

Assuming then, for the moment only, that the first theory is correct, namely, that the check was passed from Long & Co. to Rodrigues in its present shape, that the alteration was authorized, making it payable to "W. L. Rodrigues, Atty. for Charleston Paint Co.," it would have then borne upon its face evidence that the money belonged to Charleston Paint Company; that Rodrigues occupied a fiduciary relation to his client; in other words, that it was trust funds.A bank receiving trust funds under such circumstances is liable to the true owner for the defalcation of the trustee, if any of the following conditions existed: (1) That the bank violated the terms of the deposit contract.(2) That the bank appropriated the fund, either with or without the fiduciary's consent, to the payment of the latter's debt to the bank.(3) That the bank assisted the fiduciary to accomplish the misappropriation, having knowledge, actual or constructive, that the fraud was being, or about to be, perpetrated by the fiduciary.L. R. A. 1915C, 518(note).

There is no evidence tending to suggest that the bank appropriated the trust funds to a debt which Rodrigues owed it; and that condition may be dismissed from consideration.

The plaintiff complains that the bank did not comply with the deposit instructions contained in the indorsement, and is therefore liable for the consequent misappropriation of the money by Rodrigues.The indorsement is peculiar: "For deposit a/c W. L. Rodrigues, Atty. for Charleston Paint Co.W. L. Rodrigues, Atty."The plaintiff contends that this constituted a specific direction to the bank to deposit the check to the credit of "W. L. Rodrigues, Atty. for Charleston Paint Co."; that it did not do so, but entered it to the credit of "W. L. Rodrigues, Atty.," by which he was enabled to withdraw the fund and misappropriate it.

It is not at all clear that by this indorsement Rodrigues intended that the bank should open a new account in his name as attorney for the Charleston Paint Company.He had no such account in the bank, and there does not appear any reason or necessity for opening one.Clearly what he intended was to have the check deposited to the credit of his account as attorney which is demonstrated by the deposit slip which he made out at the time, directing such course.This purpose would have been more clearly defined if the signatures of the indorsement had been transposed.Such manifestly was his purpose, as indicated by the deposit slip and the action of the bank.

That Rodrigues, with authority to make the alteration or to indorse the check as it originally stood as attorney for the paint company, would have had authority to deposit the proceeds of the check either to his individual account or to his account as attorney, there does not appear a doubt.Crane Boyleston & Co. v. Moses,13 S.C. 561;J. L. Mott Iron Wks. v. Bank,78 Wash. 294, 139 P. 36;U.S. F. & G. Co. v. Adoue(Tex.)37 L. R. A. (N. S.) 409(note);Bischoff v. Bank,218 N.Y. 106, 112 N.E. 759, L. R. A. 1916F, 1059;Batchelder v. Bank,188 Mass. 25, 73 N.E. 1024;Havana Co. v. Trust Co.,123 C. C. A. 72, 204 F. 546, L. R. A. 1915B, 715, 720, L. R. A. 1915C, 528 (note "c").The bank, even with knowledge of the existence of the trust, may safely assume that, although the deposit may be entered to the credit of the fiduciary's account as an individual, or as attorney, he will faithfully disburse it.

The case of Duckett v. Bank,86 Md. 400, 38 A. 983, 39 L. R. A. 84, 63 Am. St. Rep. 513, strongly relied upon by the plaintiff, is an exceedingly interesting and instructive one, but there is a feature in that case which distinguishes it from the one at bar, in that there the direction of the deposit was controlled by the drawer of the check, and not as here by the supposed payee and indorser.The deposit contract in that case could not be altered by the fiduciary, while here the fiduciary made the deposit contract.In that case the trust estate consisted in part of a mortgage; the trustee foreclosed the mortgage and received in satisfaction of the debt a check payable to the cashier of a bank, who was directed by the terms of the check to deposit the amount to the credit of Henry W. Clagett, trustee.The trustee had no account as such with the bank, and the cashier passed the check to the credit of Clagett's individual account, which was drawn upon from time to time and, after his removal as trustee, it was discovered that the fund had been dissipated and spent.The substituted trustees made demand upon the bank for a restitution of the amount of the check, claiming that the bank was accountable therefor because it had wrongfully placed the proceeds thereof to Clagett's individual account instead of to his account as trustee, and had thereby aided and participated in his breach of trust, and instituted suit.

The court held: "Whoever knowingly aided him, or knowingly participated with him, in misapplying that fund, is, by reason of so aiding and so participating, equally liable with him to make the fund good by restoring it to the trust estate;" and that by reason of the...