Croghan v. Savings Trust Co.

• Decision Date: 19 July 1935
• Citation: 85 S.W.2d 239,231 Mo.App. 1161
• Parties: THOMAS F. CROGHAN AND HELEN F. CROGHAN, APPELLANTS, v. THE SAVINGS TRUST COMPANY, A CORPORATION, IN LIQUIDATION (O. H. MOBERLY, COMMISSIONER OF FINANCE, AND J. S. LOCKETT, SPECIAL DEPUTY COMMISSIONER IN CHARGE), RESPONDENT
• Court: Missouri Court of Appeals

85 S.W.2d 239

231 Mo.App. 1161

THOMAS F. CROGHAN AND HELEN F. CROGHAN, APPELLANTS, v. THE SAVINGS TRUST COMPANY, A CORPORATION, IN LIQUIDATION (O. H. MOBERLY, COMMISSIONER OF FINANCE, AND J. S. LOCKETT, SPECIAL DEPUTY COMMISSIONER IN CHARGE), RESPONDENT

Court of Appeals of Missouri, St. Louis

July 19, 1935

Rehearing denied September 10, 1935.

Appeal from Circuit Court of City of St. Louis.--Hon. James F Green, Judge.

REVERSED AND REMANDED (with directions).

Charles A. Lich for appellants.

The bank had no authority to substitute underlying securities in the participation account and under the terms of the participation agreement, once a security is placed in the participation account, it becomes impressed with a trust in favor of the participation holders and the bank becomes a trustee thereof for the benefit of the participation holders. Bank v. Millspaugh, 281 S.W. 733; Johnson v Brill, 295 S.W. 558, l. c. 562; Trust Company v Bank of Galleton, 61 S.W.2d 928; Turner v. Bank, 45 S.W.2d 1084; Belch v. Schott, 171 Mo.App. 357; Sandbrook v. Investment Co., 209 Mo.App. 600, 239 S.W. 543; Southern Railway Co. v. Berthold Lumber Co., 247 S.W. 219; Butler Co. v. Jolly, 261 S.W. 353; Sanders v. Sheets, 287 S.W. 1069; Burruss v. Insurance Co., 40 S.W.2d 493; 11 C. J. 508; Bright v. Mack, 72 So. 433, (Ala.); Cooper v. McKee, 121 Ky. 287; Martin v. Martin, 250 Mo. 539; Koost v. Klegg, 46 S.W.2d 866; Mann v. Bank, 46 S.W.2d 874.

Robert J. Keefe for respondent.

Igoe, Carroll, Higgs & Keefe of counsel.

Even if it should be conceded that the trust company acted wrongfully in removing the church loan from the participation account and substituting therefor another loan, still appellants' claim that the bank's assets are impressed with a trust in favor of the certificate holders would not be sustainable unless there were proof that the bank realized something upon said loan which went into and augmented its assets. Mann v. Bank of Greenfield et al., 329 Mo. 862, 46 S.W.2d 847; In re Farmers Exchange Bank of Gallatin, 327 Mo. 640, 37 S.W.2d 936, l. c. 942-943; Commerce Trust Company v. Farmers Exchange Bank, 332 Mo. 979, 61 S.W.2d 928; State ex rel. Gentry v. Page Bank, 322 Mo. 29, 14 S.W.2d 597.

HOSTETTER, P. J. Becker and McCullen, JJ., concur.

OPINION

HOSTETTER, P. J.

This is a suit for the allowance of a claim as a preferred one against the failed Savings Trust Company of St. Louis, being liquidated under the auspices of the State Commissioner of Finance.

Said Trust Company went into liquidation on the 12th day of January, 1933. The claim was, in due time, presented to the Commissioner of Finance, and was disallowed, and, thereupon suit was brought in the Circuit Court of the City of St. Louis, where, after a hearing, that court disallowed it either as a common or a preferred claim, and, from this action the plaintiffs bring the cause to this court by appeal for review.

The petition, omitting formal allegations, was in substance as follows:

That on May 15, 1930, plaintiffs purchased from the Savings Trust Company a registered first mortgage participation, for which they paid $ 4500 in cash, and, in return received Certificate No. 37, signed by the defendant Savings Trust Company, which is as follows:

"United States of America

"The Savings Trust Co.,

The Savings Trust Co.,

"of St. Louis, Mo.

No. 37

of St. Louis, Mo.

"Dollars

Series

"4,500.00

1-A.

"Registered First Mortgage Participation

"Issued by

"The Savings Trust Company

"Saint Louis

"The Savings Trust Company, of St. Louis, Missouri, hereby acknowledges the receipt of the principal sum of Forty-Five Hundred Dollars, in consideration of which said Company hereby agrees with Thomas F. & Helen Croghan hereinafter called the Holder, as follows:

"First: The Savings Trust Company hereby sells and delivers to the Holder a part ownership or Participation, equal to the principal and interest value hereof, in the first mortgage real estate notes, bonds or other obligations described on the reverse side hereof.

"Second: (a) Out of the interest accruing upon such deposited securities the Holder shall receive interest on said Principal sum from May 15, 1930, at the rate of 6 per cent (6%) per annum, payable semi-annually on the 15th day of November and the 15th day of May in each year, and The Savings Trust Company agrees without additional charge to act as Agent in the collection of interest as it becomes due and to disburse same to the Holders of this and other participations of this Series according to their various interests.

"(b) The Savings Trust Company agrees to re-purchase this Participation on the 15th day of May, 1933, from the moneys accrued from payment of the principal of the obligations described on the reverse side hereof, and pay the Holder hereof the principal sum and accrued interest and the Holder will thereupon assign and surrender same to the Savings Trust Company.

"Third: The Savings Trust Company shall have the right at its option to re-purchase this Participation at any time before the date hereinabove named for its purchase, upon three months' previous notice given by registered mail, and upon paying to the Holder said principal sum and accrued interest thereon at the rate above named to the date of such earlier re-purchase, after which date interest shall cease.

Fourth: Reference is hereby made to the Conditions printed on the reverse side hereof, which form a part of this Contract.

In witness whereof, The Savings Trust Company, has caused its corporate seal to be affixed hereto and these presents to be signed by two of its duly authorized officers, this 15th day of May, 1930.

"THE SAVINGS TRUST COMPANY,

"(Seal) By JOHN J. DOWLING,

"Attest: A. E. Moore, President.

"Secretary."

That on the back of said obligation appeared the following printed conditions:

"CONDITIONS.

"This Participation is sold subject to the following terms and conditions:

"First: This instrument represents a part ownership or Participation in notes, bonds or other obligations, and the interest accruing thereon, secured by first mortgage or other first lien on real estate deposited with and held by The Savings Trust Company, in St. Louis, for the equal pro-rata benefit and protection of all Holders of First Mortgage Participations, The Savings Trust Company guarantees to keep on deposit in the vaults of its bank, securities of the kind above described whose aggregate principal sum shall at all times equal or exceed the aggregate principal sum of all outstanding First Mortgage Participations.

"Second: The Savings Trust Company, in consideration of its obligations to the Holder, shall be entitled to retain for its own use and benefit all interest, profit and sums received or derived from said notes, bonds other obligations in excess of the amounts, both principal and interest, to be received therefrom by the Holders of all outstanding First Mortgage Participations."

It was further set out in the petition that there were no securities or obligations described on the reverse side of the certificate but that the books and records of the defendant Trust Company showed that on May 15, 1930, there had been set up, as security for the above mentioned participation certificate, a $ 28,000 first deed of trust, executed by the University Church of Christ, 6912 Delmar Boulevard, covering the property at that address, dated December 1, 1927, and due and payable on December 1, 1932, and that this was the underlying security upon which their participation certificate was issued and that the issuance of such certificate created a trust in plaintiffs' favor against said $ 28,000 deed of trust; that the said $ 28,000 first deed of trust was carried by the defendant Trust Company as security for the plaintiffs' participation certificate and that said deed of trust was sold by the defendant Trust Company on February 16, 1931, and that it received payment to the extent of $ 28,000, and that said sum of $ 28,000 was impressed with a trust in plaintiffs' favor to the extent of $ 4545 (that being the original amount plus interest) but that in disregard of its duties as trustee the said Trust Company turned the entire proceeds of said deed of trust into its general treasury and that the cash money and assets on hands at the time the Special Deputy Commissioner took charge of the Trust Company, therefore, included the trust fund to which plaintiffs were entitled. Wherefore, plaintiffs prayed judgment for $ 4545 with interest from October 20, 1933, at the rate of six per cent, and that the assets of the Trust Company be impressed with a trust in their favor to the extent of their claim and that such claim be allowed as a preferred one against the said Trust Company and for such other and further orders as they might seem to be entitled.

The amended answer contained the following, in substance:

First, a general denial; second, an averment that plaintiffs' certificate was one of a number of certificates of like kind issued by the said Trust Company and that in each of such certificates it was provided as follows:

"The Savings Trust Company guarantees to keep on deposit in the vaults of its bank securities of the kind above described whose aggregate principal sum shall at all times equal or exceed the aggregate principal sum of all outstanding first mortgage participations;" that on the 12th day of January, 1933, when said Trust Company was closed and placed in the hands of the Commissioner of Finance of Missouri for liquidation, and long prior thereto, the only security held by it as against the aforesaid participation certificate, or for the benefit of the holders of same, was a certain note in the principal sum of $ 13,000 secured by a...