Citizens State Bank of Rugby, a Corp. v. Iverson

• Decision Date: 14 May 1915
• Court: North Dakota Supreme Court

153 N.W. 449

30 N.D. 497

CITIZENS STATE BANK OF RUGBY, a Corporation, v. F. M. IVERSON

Supreme Court of North Dakota

May 14, 1915

On petition for rehearing June 8, 1915.

Appeal from the District Court of Pierce County, Burr, J.

Action to determine adverse claims. Judgment for defendant. Plaintiff appeals.

Affirmed.

Albert E. Coger, for appellant.

Iverson was the managing officer of the bank, in fact, the sole management thereof rested with him. As to the funds of the bank, he was a trustee. He occupied a fiduciary relation so far as the bank's funds were concerned. Rev. Codes 1905 §§ 5712-5715, 5718, 9282, 9206, 4657, 9277, 4822, 5706, 5711, 5710, 5724, Comp. Laws 1913, §§ 6281-6284, 6287, 10011, 9931, 5172, 10006, 5365, 6275, 6280, 6279, 6293.

The beneficial owner is allowed to follow his equitable property in the hands of third persons. 3 Pom. Eq. Jur. § 981.

Where one occupying such a position buys land with trust funds, and takes title in his own name without any declaration of a trust, a trust at once arises in favor of the original cestui que trust or other beneficiary. 1 Pom. Eq. Jur. § 422; 2 Pom. Eq. Jur. § 587; 3 Pom. Eq. Jur. § 1409; p 2024, note 1.

Mr Iverson intended that Mrs. Iverson should get the land which he had purchased with trust funds. Shearer v Barnes, 118 Minn. 179, 136 N.W. 861.

Unless it appear that Mrs. Iverson is a bona fide purchaser of the Mygland land, she can have no interest therein. 2 Pom. Eq. Jur. §§ 738, 745, 746.

One who at the time of his purchase, advances a new consideration, surrenders some security, or does some other act which leaves him in a worse position if his purchase is set aside, and purchases in the honest belief that his vendor had a right to sell, and without notice of any kind of any adverse rights, claims, interest, or equity of others in and to the property sold, is a bona fide purchaser. 5 Cyc. 719; 2 Pom. Eq. Jur. § 751.

A pre-existing indebtedness which is neither discharged nor extended does not constitute the basis for a bona fide purchase. There must be a present valuable consideration. 2 Pom. Eq. Jur. § 748; Porter v. Andrus, 10 N.D. 561, 88 N.W. 567; Adams v. Vanderbeck, 148 Ind. 92, 62 Am. St. Rep. 497, 45 N.E. 645, 47 N.E. 24; Sipley v. Wass, 49 N.J.Eq. 463, 24 A. 233, 23 Am. & Eng. Enc. Law, p. 491. p. 491.

While a third person shall not be punished for the fraud of another, yet he shall not avail himself of it. Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 9 Am. St. Rep. 698; 17 N.E. 496; Niblack v. Cosler, 74 F. 1000; First Nat. Bank v. New Milford, 36 Conn. 93; Innerarity v. Merchants' Nat. Bank, 139 Mass. 332, 52 Am. Rep. 710, 1 N.E. 282; Gunster v. Scranton Illuminating H. & P. Co., 181 Pa. 357, 59 Am. St. Rep. 650, 37 A. 550; Allen v. South Boston R. Co., 150 Mass. 200, 5 L.R.A. 716, 15 Am. St. Rep. 185, 22 N.E. 917; Loring v. Brodie, 134 Mass. 468; Platt v. Birmingham Axle Co., 41 Conn. 255; First Nat. Bank v. Dunbar, 118 Ill. 625, 9 N.E. 186.

It is true that where the party elects to accept the fruits of a transaction he will be held estopped to claim both the fruits and the property from which the same are derived. After accepting the benefits of a transaction a party will not be permitted to repudiate it. Morris v. Ewing, 8 N.D. 103, 76 N.W. 1047; Russell v. Waterloo Threshing Mach. Co., 17 N.D. 248, 116 N.W. 611.

A principal must assume the obligation if he wishes to accept the benefits of an unauthorized contract of his agent. St. Johns Mfg. Co. v. Munger, 106 Mich. 90, 29 L.R.A. 63, 58 Am. St. Rep. 468, 64 N.W. 3; Andrews v. Robertson, 111 Wis. 334, 54 L.R.A. 673, 87 Am. St. Rep. 870, 87 N.W. 190; Anderson v. First Nat. Bank, 4 N.D. 192, 59 N.W. 1029; Johnson Harvester Co. v. Miller, 72 Mich. 265, 16 Am. St. Rep. 536, 40 N.W. 429.

A principal is always liable for a fraud committed by an agent in the course of his employment, when the fraud is for the benefit of the principal. Fairchild v. McMahon, 139 N.Y. 290, 36 Am. St. Rep. 701, 34 N.E. 779; Jarvis v. Manhattan Beach Co., 148 N.Y. 652, 31 L.R.A. 776, 51 Am. St. Rep. 727, 43 N.E. 68; Nicols v. Bruns, 5 Dakota 28, 37 N.W. 754; Bennett v. Judson, 21 N.Y. 238; Elwell v. Chamberlin, 31 N.Y. 611; Jeffrey v. Bigelow, 13 Wend. 518, 28 Am. Dec. 476; Peebles v. Patapsco Guano Co., 77 N.C. 233, 24 Am. Rep. 447; Haskell v. Starbird, 152 Mass. 117, 23 Am. St. Rep. 809, 25 N.E. 14; Busch v. Wilcox, 82 Mich. 315, 46 N.W. 940, 82 Mich. 336, 21 Am. St. Rep. 563, 47 N.W. 328; Griswold v. Gebbie, 126 Pa. 353, 12 Am. St. Rep. 878, 17 A. 673; Wolfe v. Pugh, 101 Ind. 293; Rhoda v. Annis, 75 Me. 17; 46 Am. Rep. 354; Smalley v. Morris, 157 Pa. 349, 27 A. 734; Mechem, Agency, § 739; Comp. Laws 1913, § 3973; Eberts v. Selover, 44 Mich. 519, 38 Am. Rep. 278, 7 N.W. 225; McClure Bros. v. Briggs, 58 Vt. 82, 56 Am. Rep. 557, 2 A. 583; Mercier v. Copelan, 73 Ga. 636; Wyckoff v. Johnson, 2 S.D. 91, 48 N.W. 637; Joslin v. Miller, 14 Neb. 91, 15 N.W. 214; Kickland v. Menasha Wooden Ware Co., 68 Wis. 40, 60 Am. Rep. 831, 31 N.W. 471; McKeighan v. Hopkins, 19 Neb. 33, 26 N.W. 614; Honaker v. Board of Education, 42 W.Va. 170, 32 L.R.A. 413, 57 Am. St. Rep. 847, 24 S.E. 544; Zehnder v. Stark, 248 Mo. 39, 154 S.W. 92; Thomson-Houston Electric Co. v. Capitol Electric Co., 12 C.C.A. 643, 22 U.S. App. 669, 65 F. 344.

A person who has the benefit of his agent's contract must take it cum onere. Laughlin v. Excelsior Power Mfg. Co., 153 Mo.App. 508, 134 S.W. 116; Union Bank & T. Co. v. Long Pole Lumber Co., 70 W.Va. 558, 41 L.R.A. (N.S.) 663, 74 S.E. 674; D. Sullivan & Co. v. Ramsey, Tex. Civ. App. , 155 S.W. 580.

Where the conveyance is a voluntary one, it will be set aside even if the grantee is innocent of the fraud. Hitchcock v. Kiely, 41 Conn. 611; McKenna v. Crowley, 16 R. I. 364, 17 A. 354; Partelo v. Harris, 26 Conn. 483; Christian v. Greenwood, 23 Ark. 258, 79 Am. Dec. 104; Hamilton v. Staples, 34 Conn. 316; 2 Pom. Eq. Jur. 1st ed. § 909; Trumbull v. Hewitt, 65 Conn. 60, 31 A. 495.

Torson & Wenzel and H. B. Senn (Engerud, Holt, & Frame, of counsel), for respondent.

The money deposited did not remain the property of the depositors, but became the property of the bank; the account represented a debt to Mrs. Iverson and Mr. Lockwood, payable to them or their order, on demand. Shuman v. Citizens' State Bank, 27 N.D. 599, L.R.A. 1915A, 728, 147 N.W. 388.

The cashier of the bank participated in and knew all of the facts and circumstances, and knew that the transactions were illegal and fictitious. There is no possible pretext for the bank to claim the transactions were within the apparent scope of Mr. Iverson's agency for Mrs. Iverson. Emerado Farmers' Elevator Co. v. Farmers' Bank, 20 N.D. 270, 29 L.R.A. (N.S.) 567, 127 N.W. 522; Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 9 Am. St. Rep. 698, 17 N.E. 496.

And Mrs. Iverson is not chargeable with notice of such acts, or with liability therefor. Mechem, Agency, 2d ed. § 1831 and cases cited in notes; Warren v. Dixon, 74 N.H. 355, 68 A. 193; Henry v. Allen, 151 N.Y. 1, 36 L.R.A. 658, 45 N.E. 355; Allen v. South Boston R. Co., 150 Mass. 200, 5 L.R.A. 716, 15 Am. St. Rep. 185, 22 N.E. 917.

The bank has no claim either against Mrs. Iverson or the land in question, because she had no notice, nor is she chargeable with notice, of Iverson's alleged wrongs. Rev. Codes 1905, § 5782, Comp. Laws 1913, § 6350; Weisser v. Denison, 10 N.Y. 68, 61 Am. Dec. 731; Hood v. Fahnestock, 8 Watts. 489, 34 Am. Dec. 489; Bracken v. Miller, 4 Watts & S. 102; 31 Cyc. 1587, et seq, 1595; AEtna Indemnity Co. v. Schroeder, 12 N.D. 110, 95 N.W. 436; Bigelow, Fr. § 239; First Nat. Bank v. German American Ins. Co., 23 N.D. 139, 38 L.R.A. (N.S.) 213, 134 N.W. 873; Mechem Agency, §§ 718, 723, et seq; Hummel v. Bank of Monroe, 75 Iowa 689, 37 N.W. 954; Thomson-Houston Electric Co. v. Capitol Electric Co., 12 C.C.A. 643, 22 U.S. App. 669, 65 F. 341; Allen v. South Boston R. Co., 150 Mass. 200, 5 L.R.A. 716, 15 Am. St. Rep. 185, 22 N.E. 917.

He who voluntarily, and with knowledge of the facts, accepts the benefit of an act purporting to have been done on his account by his agent, thereby ratifies it and makes it his own as though he had authorized it in the beginning. Mechem, Agency, 2d ed. §§ 345, 434.

The alleged embezzlement of the bank's funds was not an act, and did not purport to be an act, done by Iverson as agent for Mrs. Iverson. Mechem, Agency, (2d ed.) §§ 376-478; Shuman v. Steinel, 129 Wis. 422, 7 L.R.A. (N.S.) 1048, 116 Am. St. Rep. 961, 109 N.W. 74, 9 Ann. Cas. 1064; Meiners v. Munson, 53 Ind. 138; Mitchell v. Minnesota Ins. Co., 48 Minn. 278, 51 N.W. 608; Puget Sound Lumber Co. v. Krug, 89 Cal. 237, 26 P. 902; Ilfeld v. Ziegler, 40 Colo. 401, 91 P. 825; Richardson v. Payne, 114 Mass. 429; Linn v. Alameda Min. & Mill. Co., 17 Idaho 45, 104 P. 668; Wycoff, Seaman & Benedict v. Davis, 127 Iowa 399, 103 N.W. 349; Fish & H. Co. v. New England Homestake Co., 27 S.D. 221, 130 N.W. 841; Ferris v. Snow, 130 Mich. 254, 90 N.W. 850.

Mrs. Iverson never had any knowledge of the alleged fact that the bank's funds had been used to pay for the land. Mechem, Agency, §§ 393-409; Wheeler v. Northwestern Sleigh Co., 39 F. 347.

A ratification of an unauthorized contract, to be effectual and binding upon the one sought to be bound as principal, must be shown to have been made by him with full knowledge of all material facts connected with the transaction. AEtna Ins Co. v. Northwestern Iron Co., 21 Wis. 458; Baldwin v. Burrows, 47 N.Y. 199; Smith v. Tracy, 36 N.Y. 79; Case v. Hammond Packing Co., 105 Mo.App. 168, 79 S.W. 733; Thacher v. Pray, 113 Mass. 291, 18 Am. Rep. 480; Roberts v. Rumley, 58 Iowa 301, 12 N.W. 323; Eggleston v. Mason, 84 Iowa 630, 51...