Covington v. Anderson

• Decision Date: 30 April 1886
• Citation: 84 Tenn. 310
• Parties: T. H. Covington et al. v. James A. Anderson et al.
• Court: Tennessee Supreme Court

84 Tenn. 310

T. H. Covington et al.

v.James A. Anderson et al.

Supreme Court of Tennessee.

April Term, 1886.

FROM SHELBY.

Appeal from the Chancery Court at Memphis. W. W. MCDOWELL, Ch.

W. S. FLIPPIN, POSTON & POSTON and METCALF & WALKER for Complainants.

WRIGHT & FOLKES, CLAPP & BEARD and MORGAN & MCFARLAND for Defendants.

TURNEY, J., delivered the opinion of the Court.

Henry O. Woodward died in Shelby county, in 1869. He had a policy of insurance on his life for $20,000. He left a widow who, shortly after his death, gave birth to a daughter. His will contains the following clauses: “I give and bequeath to my dear beloved wife, Sallie F. Woodward, for her support and the support and education of her child by me begotten, all the interest that may accrue on the remainder of the insurance that may be due my estate.” “The balance of the insurance money that may be due my estate, after the paying of my just debts, to be invested in United States interest bearing bonds (gold), with coupons attached, interest payable semi-annually. These coupons to be given to my wife, Sallie F. Woodward, as they fall due, for her support and the support of her child by me begotten.”

“Fifth, when the child of my wife, Sallie F. Woodward, by me begotten, shall arrive at the age of twenty-one years, the said United States bonds are to be divided between the said child and its mother, Sallie F. Woodward, equally, provided the said Sallie F. Woodward shall not have married again. If she has, then she, Sallie F. Woodward, is only to receive one-third of said bonds, and the said child two-thirds.”

The will was proven in November, 1869. Marcus E. Cochrane, the nominated executor, qualified. He invested $16,656.20 in three United States five twenty registered bonds of $5,000 each. They were payable on their face to M. E. Cochrane, executor or assignee. He collected and paid over the interest, as it became due, to Mrs. Woodward. He died in May, 1873. On September 9th thereafter, James A. Anderson, claiming to be public administrator for Shelby county, filed a petition in the county court, claiming that the law made it his duty to apply for administration de bonis non with the will annexed of the estate of Woodward, and letters of administration were issued to him. The administratrix of Marcus E. Cochrane turned over to Anderson the three bonds, which her intestate had left on deposit in the Union and Planters Bank of Memphis.

In December, 1876, Anderson carried two of the bonds, endorsed by him in blank, to Garth, president of the German National Bank of Memphis, and requested him to effect a sale of them through his bank for him, Anderson, saying he wanted to invest for a better interest, and showing to Garth a paper from the treasury department at Washington to the effect that, as successor of Cochrane in the administration of the estate of Woodward, he had the power to transfer the bonds. The German National Bank sent them to the Chemical National Bank in New York to sell, accompanying them with the memorandum or paper from the treasury department to Anderson. An officer of the proper department at Washington wrote to the latter bank that there was satisfactory power on file in the office in favor of the right to dispose of the bonds, but if preferred, the department would take up the bonds and issue new ones in their stead, payable to the bank or its assigns. This was done, and the substituted bonds were sold by the bank and the proceeds remitted to the German National Bank, which placed them to the individual credit of Anderson. In January, 1877, the third bond was sold and converted in the same way. The proceeds of the bonds were paid out to Anderson on his individual checks. The banks charged and received a commission on the sales. Anderson appropriated the proceeds of the bonds to his own use.

This bill is filed to have Anderson, and his sureties on his public administrator's bond, and the two banks and Garth, account. The theory of the bill is, that Garth and the banks colluded with Anderson in the conversion of a trust fund, or aided in the sale of the bonds, with knowledge, actual or constructive, of the trust upon them. The contest is abandoned as to the sureties of Anderson.

The question to be decided is, did Garth and the banks receive the bonds and dispose of them, under circumstances showing that a breach of trust was meant by Anderson, or under such circumstances as should have put them upon inquiry as to his title to the bonds, and the motive prompting him to offer them for sale? While much has been written by courts upon what shall constitute notice, actual or constructive, it has been pretty universally said that no fixed rule can be established, and that each case must stand upon its peculiar facts. The facts here are: In 1869, the will of Woodward directed a fund to be invested in bonds for specific purpose. His executor did so invest, and the bonds were made payable to M. E. Cochrane, executor, or assignee, and registered. A part of the interest had been collected by him as directed. The executor died in May, 1873, with the bonds in his possession, and with no assignment upon them. His administratrix turned the bonds over to Anderson, who carried them to the German National Bank, with blank endorsements upon them. That bank doubted the ownership of Anderson, or his right to dispose of them, as is distinctly shown by its letter to the Chemical Bank. That doubt was created by the name of the payee and the other facts appearing on and in the bonds. The same doubt was also entertained by the Chemical Bank, as evidenced by its letter to the treasury department. Both saw on the face of the bond that something substantial was lacking to make out a rightful possession and power of disposition on the part of Anderson. The bonds were offered to the banks more than seven years after the probate of the will of Woodward, and more than three years and a half after the death of Cochrane, when there could have been no available claim against the estate of Woodward, and when, we must presume, administration on the estate of Cochrane had been settled. At the time of the offer, Anderson told the president, Garth, that he wanted to sell that he might invest the proceeds so as to secure a higher rate of interest. With the consent, and for the accommodation of the New York Bank, the agent of the Memphis bank, the bonds were taken up and others issued to that bank directly. These facts when grouped, it seems to me, are little short of notice that Anderson held the bonds not as administrator, but for a trust created by the will. With all these facts, the Memphis bank received the money, placed it to the individual credit of Anderson, and paid it out on his individual checks.

A bare inspection of the bonds would have naturally suggested the inquiries: Of whom was M. E. Cochrane the executor? Of whose estate is Anderson administrator? Why is there no assignment on the bonds? How came Anderson by them? By what authority does Anderson propose to dispose...