Covey v. Cannon

• Decision Date: 08 July 1912
• Citation: 149 S.W. 514,104 Ark. 550
• Parties: COVEY v. CANNON
• Court: Arkansas Supreme Court

149 S.W. 514

104 Ark. 550

COVEY v. CANNON

Supreme Court of Arkansas

July 8, 1912

[Copyrighted Material Omitted]

Appeal from Benton Chancery Court; T. H. Humphreys, Chancellor reversed in part.

STATEMENT BY THE COURT.

This suit is by appellees to charge certain funds in the hands of the receiver of the Bank of Siloam with a trust and to have same applied to the payment of their claims in preference to the claims of general creditors; and from the decree directing it done the receiver appealed.

The Bank of Siloam closed its doors August 6, 1910, and a receiver was on that day appointed.

On February 4, 1909, Ollie Stout, as guardian, loaned the bank $9,000, taking its notes, bearing 8 per cent. interest payable annually, due five years after date. The bank executed to her a written contract agreeing to assign to her, as collateral, good notes secured by real estate mortgages in the aggregate $9,000 to be placed in her private box in said bank, as a special deposit, each party having a key to same. The bank had the right to collect the interest and principal of the collateral notes as they became due and to release the mortgages, upon condition that it should at the same time replace the notes so collected with notes of equal amount assigned and secured in a similar way and bearing the same rate of interest, keeping the amount of collateral in the box equal to the amount due the guardian on the notes until they should be paid.

The bank assigned and deposited in the box 10 per cent. notes properly secured, and continued to keep the collateral equal to the amount due on its notes to July 7, 1910, and on that date, without her knowledge or consent, it took from the box a collateral note and mortgage for $900 on which the principal and interest was not due until January 1, 1911; collected the same in full and released the mortgage and appropriated the amount so collected and mingled it with the funds of the bank, making no entry of the transaction on the books of the bank, nor placing any amount to her credit as guardian, nor did it replace in the safety deposit box any money or security as collateral in the place thereof, leaving the amount of collateral less than the amount due on its notes to her in the sum of $834. She had no knowledge of this transaction until after the bank closed.

Jerome Mason, of Lincoln, Kansas, purchased of Wm. Cook, of Everett, Kansas, through his agent, C. E. Sheldon, on March 30, 1910, certain lands in Washington County, Arkansas, agreeing to pay therefor $2,700, $500 of that date to be paid to the real estate brokers of Siloam Springs to be deposited with the contract of purchase and the deed in the Bank of Siloam when the contract was returned executed, $1,000 to be paid on or before December 1, 1909, $1,200 on or before April 1, 1911, deferred payments to be secured by mortgages on the land. The agreement, deeds, cash payment, notes, mortgages and all other papers by the Bank of Siloam subject to the terms and conditions named in the agreement; when the deeds are deposited and abstract approved, the $500 cash payment to be placed to credit of Sheldon; and when the $1,000 note is paid, exchange of papers to be made. P. E. Moss, of the firm of real estate brokers, transacted the business with the bank, and on March 28, 1910, when the terms of the contract had been agreed upon, received from Mason his personal check on a bank of Lincoln, Kansas, payable to his firm, for $500 to cover the cash payment. After the contract was executed and returned, this check was indorsed to the Bank of Siloam by Moss and placed with the contract in one of the firm envelopes, unsealed and indorsed thereon: "Deposited in the Bank of Siloam, Apr. 11, 1910, C. E. Sheldon, Agent, to Jerome Mason. Sale of 164 acres of land in Washington County, Arkansas. Sold for $2,700. $500 cash, $1,000 on or before Dec. 1, 1909, $1,200 on or before Apr. 1, 1911. No money to be paid to C. E. Sheldon, Agt., until abstract of title is approved. Sale by Moss Bros., Hays & Ballou. Contents--Contract--Check for $500, to be collected and held in escrow. Moss Bros., Hays & Ballou."

This envelope, with the contents, was delivered to the bank on April 11, 1910, and the cashier instructed to hold the same in escrow as provided for in the contract. The bank issued duplicate receipts, in substance the same as the indorsement on the envelope, and, without the consent of Moss, Sheldon or Mason, placed the amount of the check on its ledger to the credit of Jerome Mason, marked the account "escrow," collected the check, and mingled it with the funds of the bank. Neither Mason nor Sheldon kept any account with the bank, nor did they have any knowledge of this transaction, and the abstract of title had not been approved before the bank failed, but it was afterwards approved, and the sale consummated, with the exception of the payment of the said $500.

Patrick Cannon purchased a piece of land in Washington County June 16, 1910, from Nancy Smith, through said P. E. Moss, a real estate broker, under like terms and conditions as the Sheldon-Mason transaction already set out, except that one of the deferred payments was due July 1, 1910, and Cannon made his personal check for the first payment on a bank in Kansas payable to the Bank of Siloam, so that the brokers did not have to indorse it. The contract provided that for the failure for ten days to make any deferred payment the deed was to be returned to the grantor. The contract, deed and check, indorsed as in the other case, were delivered to the bank on June 17, 1910, and the bank placed the $500 on its ledger to the credit of Patrick Cannon, marked the account "escrow," collected the check, and mixed the funds with its own funds. Upon the next payment being due and the abstract of title not being approved, Cannon purchased of the bank in Lincoln, Kansas, a draft for $500 payable to the Bank of Siloam, and sent it to the bank with the following letter:

"Lincoln, Kansas, June 29, 1910.

"Bank of Siloam, Siloam Springs, Arkansas:

"Gentlemen: Inclosed please find draft No. 83,084 for $500, acct. Pat Cannon, for payment of land purchased of Nancy C. Smith, widow, through P. E. Moss, of your city, and the contract for which land is on deposit in your bank. You are instructed not to turn this money to Mrs. Smith or any other person until requested by Mr. Pat Cannon, or his authorized agent, J. J. McCurdy. Under the terms of the contract, the abstract of title was to be submitted for examination, and this has not been done, and in the event abstract is not submitted for examination within a reasonable time the inclosed amount is subject to recall by Mr. Cannon. Hold the money until instructed to do otherwise by Mr. Pat Cannon.

Respectfully yours,

"J. A. Shillinger, Cashier."

The bank credited this check as it had done the others, collected the money, and put it with its own funds, of which the other party had no knowledge until after the bank failed. The trade was afterwards closed, with the exception of the payment of the $1,000 that had been appropriated by the bank.

Darby, a nonresident, owned ten acres of land near Siloam Springs, which was mortgaged to Harris for $414.20. Brockman, as agent, contracted to sell the land to Stillions for $850. Stillions had $300, and he and said agent placed it in escrow in said Bank of Siloam on July 14, 1910, with a contract allowing Brockman thirty days in which to procure a loan for Stillions of $550, the balance of the purchase money, and, in case of his failure to do so, the contract was to be cancelled, and the $300 to be returned to him. The bank, without the knowledge or consent of Darby, placed the $300 to his credit on its books, marked the account "escrow," and mingled the money with its own funds. On August 3, 1910, the cashier informed said parties that the bank would loan the $550. On August 5, 1910, Stillions and his wife executed to the bank two promissory notes for $275 each, due in one and two years, with interest, secured by mortgage on the land. The bank placed another credit of $550 to the account of Darby on its ledger, charged his account with the $414.20 due Harris on his mortgage, placed that amount to Harris's credit, and took a release of the mortgage from him. It charged also the account of Darby with $42.50 due Brockman for commission, and placed that sum to Brockman's credit. Neither Darby nor Brockman was present at these transactions, and did not authorize the bank to place the $550 to the credit of Darby, and had no knowledge of the business transacted by the bank at that time until after the bank failed on August 6, 1910. Neither of them ever authorized the bank to place any of the money collected for Darby to his credit in the bank. The two notes and mortgage executed to the bank by Stillions came into the hands of the receiver, and were sold by him for $550, cash, by order of the chancery court. Darby prayed that the receiver be ordered to pay him the sum of $850, the sum for which the land was sold, less the amount paid on the Harris mortgage.

The interveners alleged that the bank wrongfully mingled their said moneys with its own funds, and that such funds came into the hands of the receiver, either in cash or in securities.

The bank at the time of the Sheldon-Mason transaction was insolvent, but had on hand other sums in cash and various securities and other assets, and continued to carry on business until August 6, 1910, at no time reducing the amount of actual cash on hand to a less sum than $1,500 until the morning of that day. On that morning the cashier of the State Bank of Siloam Springs received from it $1,074.42, to protect said bank on drafts given it by the Bank of Siloam, which had been protested. "Laffollette,...