First Nat. Bank of Mobile v. Pope

• Decision Date: 17 December 1959
• Docket Number: 1 Div. 823
• Citation: 117 So.2d 174,270 Ala. 202
• Parties: FIRST NATIONAL BANK OF MOBILE, Edwin C. Wilcox, doing buisness as Edwin C. Wilcox Company, and Harold Donald Percy, v. Lavada H. POPE. -825.
• Court: Alabama Supreme Court

Page 174

117 So.2d 174

270 Ala. 202

FIRST NATIONAL BANK OF MOBILE, Edwin C. Wilcox, doing buisness as Edwin C. Wilcox Company, and Harold Donald Percy, v. Lavada H. POPE.

1 Div. 823-825.

Supreme Court of Alabama.

Dec. 17, 1959.

Rehearing Denied Jan. 21, 1960.

Sam M. Johnston, Johnston, McCall & Johnston, Mobile, for appellant First National Bank.

Caffey, Gallalee & Caffey, Mobile, for appellant Wilcox.

Dan T. McCall, Jr., Mobile, for appellant Percy.

Thornton & McGowin, Mobile, for appellee.

MERRILL, Justice.

Appeal from a decree sustaining demurrer to bill as amended and to cross-bills of respondents, Wilcox and Percy.

The original bill of complaint was filed by the First National Bank of Mobile. It alleged the procurement of money from the bank by Douglas H. Pope, deceased, by the exercise of fraud, and the investment by Douglas H. Pope of some of the money so fraudulently obtained in the payment of premiums on life insurance policies totaling $80,000, payable to his wife, Lavada H. Pope, the appellee; and also that some of the money was used in part payment of the purchase price of a homestead which Douglas H. Pope and Lavada H. Pope acquired as joint tenants and not as tenants in common (full title passed to Lavada H. Pope on the death of her husband under the survivorship clause in the deed).

The bill further alleged that all premiums since July 22, 1949, and all payments on homestead were paid from the monies frauduletly obtained by Pope. Some of the insurance policies were purchased before Pope had any financial dealings with appellants.

It is also alleged that Pope was engaged in the general brokerage business under the name of Douglas H. Pope Company, dealing in the purchase and sale of commodities in the United States and foreign lands; that the bank began making loans to him in 1949, which continued until his death in 1958; that this accounts were carried in the name of Douglas H. Pope and his trade name of Douglas H. Pope Company; that when he died, he owed the bank, in his individual account, $6,597, and under his trade name, $173,954.

It is averred that the loans were made by the bank because Pope deposited with the bank collateral evidencing assets which did not in fact exist and by misrepresenting to it the ownership and possession of commodities sufficient to amply secure the loan, and that he represented that he was solvent and that his assets far exceeded his liabilities. It is averred that as a result of such false misrepresentations and the deposits of fictitious and non-existent collateral, Pope defrauded complainant of vast sums of money, the amount having already been stated.

The bill shows that $5,000 from the proceeds of the insurance paid to Lavada H. Pope was deposited in complainant bank, and that $72,000 was deposited in the Merchants National Bank of Mobile, a respondent. It is then averred that the money fraudulently obtained from the bank was used by Pope to purchase the homestead, and pay the interest on the unpaid balance, and to pay the premiums on the life insurance policies, and that the proceeds of the policies and the real estate were impressed with a trust for the benefit of the bank and that the bank did not discover the fraud of Pope until after his death on January 6, 1958.

It also averred that respondents, Harold Donald Percy and Edwin C. Wilcox, asserted claims to an interest in the proceeds.

The prayer of the bill seeks to have the court determine the respective claims of all parties in the funds and the real estate.

Respondent Percy filed an answer and cross-bill admitting most of the allegations but denied that Pope had used all the money loaned him from the bank to pay the premiums and buy the real estate, but says that during that time, Percy had advanced Pope over $242,000 because Pope had fraudulently represented that he was engaged in the business of buying rice hulls in carload lots for export at a handsome profit and that Pope, at the time of his death, owed Percy $19,688.42, and Percy asked that the proceeds of the insurance and the homestead be subjected to his claim.

Respondent Wilcox filed a similar answer and cross-bill to that of Percy alleging that during the period, he advanced Pope over $250,000 based on fictitious carload lots of rice pulp and that at the time of his death, Pope owed Wilcox $34,211.47. Wilcox also asked that the proceeds of the insurance and the homestead be subjected to his claim.

Appellee argues that Pope's personal representative should have been made a party to the suit and that there may have been other creditors who had been defrauded as were the appellants. We cannot agree.

There is no question here of a fraudulent conveyance involving the estate of the decedent. The issue is between the widow, Lavada Pope, and the three claimants as to the ownership of the proceeds of insurance policies in which Lavada Pope was the sole beneficiary. The personal representative has no such interest in the policies as to require that he be made a party.

If there be persons who ought to be and are not made parties to the suit that fact does not appear on the face of the bill, and therefore, the objection is not a proper subject of demurrer. Walling v. Thomas, 133 Ala. 426, 31 So. 982. Based upon the allegations of the bill and the cross-bills, the necessary parties are before the court.

The pivotal question in this case is whether monies obtained as loans over a period of years for which fictitious collateral was offered by the borrower and partly invested in insurance policies made payable to the widow of the borrower, or in a homestead owned by the borrower and his widow which passed to her, can be traced into and enforced against the proceeds of the insurance or against the homestead, giving consideration to the exemptions in favor of the widow.

The majority rule seems to be that where a person has embezzled, stolen or misappropriated funds of another and used them for the purchase or payment of premiums on insurance on his life, a trust is created in favor of the owner of the funds, and the owner is entitled to recover from the proceeds of the insurance policies. This recovery is sometimes limited to the amount of the premiums and sometimes to such proportion of the total insurance as the amount of the premiums which have been paid from the misappropriated funds bears to the total amount of the premiums paid. 38 A.L.R. 930; 24 A.L.R.2d 672.

It is also generally held that statutes which exempt the proceeds of life insurance from the claims of the insured's creditors are inapplicable to prevent one whose funds have been wrongfully used to pay premiums from resorting to the proceeds for relief. 24 A.L.R.2d 675.

Cases applying these principles and cited by appellants are: Truelsch v. Northwestern Mut. L. Ins. Co., 186 Wis. 239, 202 N.W. 352, 38 A.L.R. 914--embezzler bookkeeper; Vorlander v. Keyes, 8 Cir., 1 F.2d 67--embezzler bank president; Massachusetts Bonding & Ins. Co. v. Josselyn, 224 Mich. 159, 194 N.W. 548--embezzler administrator; Dayton v. H. B. Claflin Co., 19 App.Div. 120, 45 N.Y.S. 1005--thief; Shaler v. Trowbridge, 28 N.J.Eq. 595--embezzler partner; Holmes v. Gilman, 138 N.Y. 369, 34 N.E. 205, 20 L.R.A. 566--embezzler partner; Brown v. New York Life Ins. Co., 9 Cir., 152 F.2d 246--embezzler bank vice president; Jansen v. Tyler, 151 Or. 268, 49 P.2d 372--embezzler corporate officer; Succession of Onorato, 219 La. 1, 51 So.2d 804, 24 A.L.R.2d 656--embezzler agent of estate funds.

It will be noted that in every case, the funds were stolen or embezzled. Insofar as our investigation reveals, it is uniform in the United States that a thief acquires no title to personal property and, ordinarily, no one can transfer to another a better title than he himself possesses. Our cases are in accord. Stathem v. Ferrell, 267 Ala. 333, 101 So.2d 546; Geneva Gin & Storage Co. v. Rawls, 240 Ala. 320, 199 So. 734; Barrow v. Brent, 202 Ala. 650, 81 So. 669; see Tit. 57, § 29, Code 1940.

In the cases cited by appellants, title to the stolen or embezzled funds never left the true owner, and the owner was permitted to recover from the proceeds of the insurance.

In the instant case, Douglas Pope did not steal, embezzle or misappropriate any funds of appellants. Under the allegations of the bill, the bank, 'loaned him monies continuously' from 'the initial dates of the opening of said accounts until his death' (1949-1958). It is alleged that he gave notes for the sums he borrowed. The title to the borrowed money was in Douglas Pope to do with as he pleased, and there is no allegation that he promised to use the money in any particular way or for any specific purpose. Whether the collateral was the same or different for each loan, we are not apprised; it is alleged that he 'obtained such loans by depositing with your Complainant collateral evidencing assets which did not in fact exist; and by falsely misrepresenting to it the ownership and possession of commodities sufficient in value and volume to amply secure said loans.' But it still remains that the bank intended to lend the money to him, it loaned him money 'continu...