Dorsey v. Murphy

• Decision Date: 18 March 1940
• Docket Number: 33942
• Court: Mississippi Supreme Court
• Parties: DORSEY v. MURPHY et al

194 So. 603

188 Miss. 291

DORSEY v. MURPHY et al

No. 33942

Supreme Court of Mississippi, Division B

March 18, 1940

Suggestion Of Error Overruled April 29, 1940.

APPEAL from the chancery court of Leake county HON. M. B MONTGOMERY, Chancellor.

Suit by Mrs. Edith Christine Dorsey against E. A. Murphy and others to enforce liability of guardian and guardian's surety for damages to ward resulting from improper investment of ward's funds. From an adverse judgment, plaintiff appeals. Reversed and remanded.

Judgment reversed and cause remanded.

L. F Easterling and J. E. Franklin, both of Jackson, for appellant.

On the duties and responsibilities of guardians and sureties for trust funds, see: Gregory v. Orr, 61 Miss. 307; McWilliams v. Norfleet, 63 Miss. 183; Ames v Williams, 74 Miss. 404, 20 So. 837; In re Guardianship of Horne, 173 So. 665; Manegold v. Beaven (Ala.), 66 So. 451; Bell v. Rudolph, 70 Miss. 234.

On the annual accounts of guardian conclusive as to guardian, see: Johnson v. Miller, 33 Miss. 553; Buchanan v. Grimes, 52 Miss. 82; McFarlane v. Randle, 41 Miss. 411; Adams v. Westbrook, 41 Miss. 385.

Guardian, surety, and Leake County Bank liable for diversion of funds, see: In re Guardianship of Horne, 173 So. 660; 39 Cyc. 468.

As to liability of Bank for trust fund see: U.S. F. & G. v. Adone et al., Ann. Cas., 1914B, 667 and notes; Eyrich v. Bank, 67 Miss. 60; Armour v. Bank, 69 Miss. 700, 11 So. 28; Mitchell v. Bank, 98 Miss. 658, 54 So. 87.

As to liability of all defendants, see Brewer v. Herron, 157 So. 522.

It is our contention that Murphy without the prior and precedent consent of the chancery court had no power to loan or tie up the funds of his ward for one, two, or three years, as agreed upon; that the agreement of said guardian was upon the condition that the chancery court should, according to law, ratify and approve such a plan or loan of the money before the money was loaned or the certificates accepted; that this was a complete and total change of the prior orders of the court allowing the guardian to deposit the money in Leake County Bank, either on time savings certificate or on savings account, and that the Bank itself, being now solvent and being the same bank that caused this state of affairs, and procured the signature of the guardian on the condition of a prior and precedent order of the chancery court conditioned to stand in relation to these funds as to a co-trustee and co-guardian thereof and became liable, as such, to the full extent of the guardian himself. In other words, we take the position that this guardian was not bound by his agreement to said proposed plan but could have demanded the money of this ward at any time thereafter from said bank and could have recovered the same, and it was his duty to have done so. Under the statutes and decisions of this court in making any loan of funds not needed for the support of the ward there must be a precedent order of the chancery court, and since the bank secured the agreement of the guardian on the condition that they would secure the precedent approval, they became liable, as surety and as co-guardian of these funds, to the full amount that the estate of the ward was damaged by this transaction. The very purpose of the law in making loans of deposits of ward's funds, the chancery court, being the guardian of all minors, should be presented with the full and complete statement of the facts and should pass upon this question so important to the estate of the ward before the loan was actually carried out.

Brewer v. Herron, 157 So. 523.

We take the position that the National Surety Corporation became liable under its bond, which was filed in May, 1933, on the theory the affairs of the Leake County Bank were turned back to it in June, 1933, and it thereby became a solvent and going concern and still is, and that it was the duty of the guardian and surety to take all necessary steps to recover, save, and protect these funds of the ward.

The court is familiar with the rule that it was the duty of the surety to take any and all steps necessary and proper to protect its liability, and to bring any matter to the notice of the court, and we say that it was the duty of the guardian and the surety to have instituted suit in order to recover these assets belonging to said ward from the Leake County Bank, and that the wilful failure and neglect, and gross negligence on the part of the guardian and the surety, operate in law to make them liable under the terms of the bond for the full amount of the estate of this ward.

Where the Bank attempted to relieve itself from liability for these trust funds under the reorganization plan of 1933, to the amount of $ 845.50 by selling stock to the guardian, which he attempts to deliver to the ward, there can be no doubt under the decision of Carlisle v. Love, 155 So. 197, that it was beyond the power of the court to authorize any exchange of the ward's trust funds under our statutes in bank stock, and if the guardian and the surety accepted or allowed the guardian to accept said stock for money due by the bank, such action was contrary to the law, contrary to the jurisdiction of the chancery court, and the chancellor's decision is palpably erroneous, as failing to give effect to these fundamental principles so correctly expressed by Judge Cook in Carlisle v. Love, supra.

Butler & Snow, of Jackson, for appellee, National Surety Corporation.

It is perfectly clear that the National Surety Corporation is not liable for losses arising from or caused by acts committed prior to May 1, 1933.

National Surety Corp. v. Laughlin, 178 Miss. 499.

The validity of this reorganization proceeding was attacked in Franklin v. Leake County Bank, 161 So. 122, and the decree upheld in every respect. In affirming the case, the court merely followed Dunn v. Love, 172 Miss. 342, 92 A. L. R. 1323, and Doty v. Love, 295 U.S. 64, 79 L.Ed. 1303, 96 A. L. R. 1438, in which the case of Dunn v. Love, supra, was affirmed.

In December, 1933, an effort was made to insure the deposits of the bank with the Federal Deposit Insurance Corporation. This could not be done unless the bank was again reorganized. In this situation a plan was worked out whereby: (a) all outstanding stock was called in and cancelled; (b) all depositors were to be paid 50% of their frozen deposits in cash; (c) for the remaining 50% of frozen deposits, each depositor was to receive stock in the bank, in proportion to their respective deposits in the bank; (d) the remainder of the frozen deposits was to be charged out.

In pursuance of the plan, the guardian was paid in cash $ 845.79. Stock was issued in his name, in whole and fractional shares, for $ 498.32 and the balance of $ 347.47 charged out. (In a number of places the stock is referred to as being $ 495.00 and the charge-out as being $ 350.79. Actually the stock and charge-out were as stated above.)

Thus it will be seen that $ 845.79 of the frozen balance of $ 1691.58 was actually received by the guardian, and there is no controversy but that all of this money was subsequently disbursed by the guardian under the orders of the court for the use and benefit of the minor.

It is complained that a part of the balance of $ 845.79 was improperly invested in stock and a part charged off. And this was not pursuant to any authorization of the court. And, consequently, there is a devastavit as to this amount. But it will be remembered that this balance on the reorganization proceedings of June, 1933, was a frozen balance, and was to be paid as, if, and when sufficient collections were made from the then assets of the bank to pay it.

Now, we think it elemental that the liability of the guardian and surety is consequential; that there can be no recovery against the guardian or the surety unless it is shown that the ward has been damaged by the act. The bill does not allege, nor is there any evidence to show, that there had been realized from the then assets of the bank, or would ever be realized therefrom, sufficient collections to pay more than the cash which the guardian received under the arrangement now being discussed. Indeed, the record rather indicates that, under the arrangement, appellant has received more than she would have received otherwise.

Dunn v. Love, 172 Miss. 342; Aetna Indemnity Co. v. State, 101 Miss. 703; Moffatt v. Loughridge, 51 Miss. 211; In re Guardianship of Horne, 178 Miss. 714.

It is suggested that, under the principles announced in such cases as McWilliams v. Norfleet, 62 Miss. 183; Aetna Indemnity Co. v. State, 101 Miss. 703; Moffatt v. Loughridge, 51 Miss. 211, and Ames v. Williams, 74 Miss. 404, the National Surety Corporation should be held liable in this case because it and the guardian failed to collect the money from the bank after the corporation assumed liability on the guardian's bond given by the National Surety Company, and before the bank was turned over to the banking department for liquidation in June, 1933. There are five answers to this suggestion. They are as follows:

(1) The bill of complaint does not charge the guardian with negligence or want of diligence in his failure to so collect or sue. It was on this theory that the court excluded certain testimony, by which appellant undertook to prove certain negligence of the guardian.

(2) There is no evidence to show that the money could have been collected with or without suit, or that the condition of the bank was such that it could pay it.

In re Horne, 178 Miss. 714; Aetna Indemnity Co. v. State, 101 Miss. 703.

(3) The surety had a reasonable time after May 1, 1933, within which to demand the money or to sue. It assumed liability on May 1 1933, at a time when the bank was closed and could not re-open,...