First Nat. Bank of Mobile v. Pope

• Decision Date: 07 February 1963
• Docket Number: 1 Div. 946,Nos. 1,1 Div. 945,s. 1
• Citation: 149 So.2d 781,274 Ala. 395
• Court: Alabama Supreme Court
• Parties: FIRST NATIONAL BANK OF MOBILE, Edwin C. Wilcox, d/b/a Edwin C. Wilcox Company and Harold Donald Percy v. Lavada H. POPE. Div. 944,and

Page 781

149 So.2d 781

274 Ala. 395

FIRST NATIONAL BANK OF MOBILE, Edwin C. Wilcox, d/b/a Edwin C. Wilcox Company and Harold Donald Percy v. Lavada H. POPE.

Nos. 1 Div. 944, 1 Div. 945 and 1 Div. 946.

Supreme Court of Alabama.

Feb. 7, 1963.

Sam M. Johnston and Johnston & Johnston, Mobile, for First National Bank and Percy.

Caffey, Gallalee & Caffey, Mobile, for Wilcox.

Thornton & McGowin, Mobile, for appellee.

MERRILL, Justice.

The original bill of complaint alleged the procurement of money from the complainant, The First National Bank of Mobile, by Douglas H. Pope, deceased, by the exercise of fraud and the investment by 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, and the use by Pope of some of the money as payment of the purchase price of a homestead, which passed on his death to his wife.

Lavada H. Pope, Edwin C. Wilcox, Harold Donald Percy and The Merchants National Bank of Mobile were made respondents to the bill. The bill alleged that Wilcox and Percy each claimed an interest in the proceeds of the insurance policies and in the real property purchased as a homestead.

The bill prayed that the claims of all parties to the suit in and to the proceeds of the insurance policies and in and to the real property acquired as a homestead be determined and enforced.

Wilcox and Percy each filed an answer which was made a cross bill wherein substantially all of the allegations of the complaint were admitted except those to the effect that all of the premiums on the insurance policies and all payments on the homestead were paid from money fraudulently obtained from the complainant bank.

Each of the cross-complainants alleged that a portion of the premiums paid on the insurance policies and some of the payments on the homestead came from moneys fraudulently obtained by Pope from him.

The demurrer interposed by the respondent Lavada H. Pope to the original bill and the demurrers interposed by her to each of the cross bills were sustained.

The complainant and each of the cross-complainants appealed to this court. We affirmed. First National Bank of Mobile v. Pope, 270 Ala. 202, 117 So.2d 174.

The complainant and cross-complainants were given the right to amend and on return of the case to the circuit court the complainant bank amended its bill and each of the cross-complainants amended his cross bill. Demurrers interposed by Lavada H. Pope were sustained to the complaint as thus amended and to each of the amended cross bills. The complainant and the cross-complainants again amended their respective pleadings. The trial court thereafter sustained demurrer of Lavada H. Pope to the complaint as last amended and sustained her demurrers to the respective cross bills of Wilcox and Percy as last amended and dismissed the bill as last amended and each of the cross bills as last amended. From that decree, the complainant and the cross-complainants have appealed.

We are required by statute, Tit. 13, § 28, Code 1940, to review the case anew without regard to the former decision. Lucas v. Lucas, 258 Ala. 515, 64 So.2d 70.

The averments added by way of amendments following the decision on the first appeal seek to show that a fiduciary relationship existed between the appellants and Douglas H. Pope at the time he secured the loans from the appellants. These added averments, however, are not sufficient to show that relationship except by way of conclusion. The complaint and the cross-complaints, as last amended, when construed most strongly against the pleaders, simply show a relationship of lender and borrower. That relationship is not a fiduciary one. See Restatement Second, Trusts, § 12b; Downey v. Humphreys, 102 Cal.App.2d 323, 227 P.2d 484; Higgins v. Chicago Title & Trust Co., 312 Ill. 11, 143 N.E. 482.

On first appeal, the 'fictitious collateral' offered by Pope was not particularly described but the amended bill shows that he merely signed demand notes payable, with interest, to The First National Bank of Mobile, hereinafter called 'the Bank,' and produced fictitious invoices representing sales of flour or other commodities to some dealer outside of Mobile, which flour was then supposed to be in transit to the buyer and the buyer was supposed to pay for the flour within thirty days.

Collateral security is defined as a 'security given in addition to the direct security, and subordinate to it, intended to guarantee its validity or convertibility or insure its performance; so that, if the direct security fails, the creditor may fall back upon the collateral security. * * * Collateral security, in bank phraseology, means some security additional to the personal obligation of the borrower.' Black's Law Dictionary, Fourth Edition.

The so-called collateral described in the amended bill did not meet the requirments of the definition. Even if the invoices had been genuine, the Bank would have had nothing to 'fall back upon' if the notes were not paid because the Bank had no claim on any of the named purchasers from Pope.

Construing the averments of the amended bill more strongly against the pleader, it becomes apparent that the Bank did not rely on this so-called 'collateral security,' but upon Pope's false representations that he was financially worth more than he actually was, and was making more sales than he actually was. We further note that the pleadings show a continuous series of loans from the Bank to Pope over a period of nine and one-half years but no payments on any notes are alleged except as to the first note of $5,000 at the beginning of his business with the Bank in 1949, yet in that period of time, his indebtedness to it grew from zero to over $175,000.

The Bank argues here, as on the first appeal, that a constructive trust was created in the proceeds of the insurance and in the homestead in its favor because of the false representations of Pope as to his worth and the amount of business he was doing when he signed the demand notes.

On first appeal, we discussed every case cited to us by appellants to support the application of a constructive trust to the facts. Those cases were: Truelsch v. Northwestern Mut. L. Ins. Co., 186 Wis. 239, 202 N.W. 352, 38 A.L.R. 914; Vorlander v. Keyes, 8 Cir., 1 F.2d 67; Massachusetts Bonding & Ins. Co. v. Josselyn, 224 Mich. 159, 194 N.W. 548; Dayton v. H. B. Claflin Co., 19 App.Div. 120, 45 N.Y.S. 1005; Shaler v. Trowbridge, 28 N.J.Eq. 595; Holmes v. Gilman, 138 N.Y. 369, 34 N.E. 205, 20 L.R.A. 566; Brown v. New York Life Ins. Co., 9 Cir., 152 F.2d 246; Jansen v. Tyler, 151 Or. 268, 47 P.2d 969, 49 P.2d 372; Succession of Onorato, 219 La. 1, 51 So.2d 804, 24 A.L.R.2d 656; Exchange State Bank v. Poindexter, 137 Kan. 101, 19 P.2d 705. These cases fall within one or more of the following classifications:

(1) Where the wrongdoer occupied a fiduciary relationship to the owner of the money;

(2) Where the money or property was taken by a thief or embezzler;

(3) Where a certain use, agreed to in writing, was to be made of the money received but it was used for different purposes;

(4) Where the wife participated in or had knowledge of her husband's fraud.

We said on the first appeal, and that was the crux of our holding:

'We have not been cited to, nor have we found, any case factually in point with the one under consideration, but since there was no embezzlement, theft or misappropriation on the part of Douglas Pope, and no alleged complicity or knowledge on the part of his widow, we are unwilling to apply the cited authorities to the facts in the instant case.'

We also stated that Pomeroy, § 1053, had been quoted in certain of our cases, but that in each instance, the wrongdoer had been in a fiduciary relationship to the person seeking to establish the trust. This is not to hold that § 1053 is limited to cases involving a fiduciary relationship and is not to be so construed.

In our opinion on first appeal, we were content to affirm the decree of the lower court because no case had been cited to us which met the facts of the case before us. However, on this appeal, we have found cases which do support the decree.

The main question is whether the facts show a constructive trust as between the borrower and the lender, when the fraud is limited to false representations by the borrower as to his worth or his accounts receivable.

We discuss three cases where the only fraud consisted of false representations made by a bank when it was the borrower. As pointed out in the cases, the relationship of a bank with a general depositor is that of debtor and creditor.

In Venner v. Cox, (Tenn.Ch.App.), 35 S.W. 769, the plaintiff, a regular depositor, heard rumors of the bank's unsound condition and, five days before it closed, he presented his check for the balance of his account. The president told him the bank was entirely solvent and safe, showed him the latest government report on the bank, and all these statements were false and fraudulent and known by the president to be so at that time, 'and by these false and fraudulent representations he quieted the apprehensions of complainant, and induced him to destroy his said check, drawn by him and presented as aforesaid, and to let his money remain in said bank.' But for these false and fraudulent representations, complainant would have had his money before the bank failed. Complainant sought to have a constructive trust established on the money of the bank in the hands of the receiver. The demurrer to the bill was sustained. On appeal, the decree was affirmed, and the court, after quoting Story and Perry on Trusts, and stating the principle 'that, where a party obtains the property of another by fraud, he will be held to be a trustee for the owner,' said:

'* * * But this case is one simply of creditor and debtor, wherein the debtor, by a series of egregious lies as to his solvency and ability to pay his...