Humphries v. Manhattan Sav. Bank & Trust Co.

• Decision Date: 17 December 1938
• Citation: 122 S.W.2d 446,174 Tenn. 17
• Parties: HUMPHRIES v. MANHATTAN SAV. BANK & TRUST CO. et al.
• Court: Tennessee Supreme Court

122 S.W.2d 446

174 Tenn. 17

HUMPHRIES v. MANHATTAN SAV. BANK & TRUST CO. et al.

Supreme Court of Tennessee.

December 17, 1938

Appeal from Chancery Court, Shelby County; L. D. Bejach, Chancellor.

Suit by Martha Pearl Humphries, a minor, by her next friend, against the Manhattan Savings Bank & Trust Company and another to recover a sum invested by Mrs. Pearl Humphries as complainant's guardian in notes or bonds secured by a mortgage on realty, in which defendants filed a cross-bill for a decree over against the guardian and the sureties on her bond. A decree dismissing the bill was reversed and a decree for complainant rendered by the Court of Appeals, and defendants petition for certiorari.

Petition denied.

Canada & Russell and Cooper Turner, Jr., all of Memphis, for defendants.

GREEN Chief Justice.

This bill was brought by Martha Pearl Humphries, a minor, through her next friend, to recover of Manhattan Savings Bank & Trust Company and Manhattan Securities Company the sum of $3655.34 with certain interest. The bill was dismissed by the chancellor but his decree was reversed by the Court of Appeals and a decree was rendered for the minor in that court.

Mrs Pearl Humphries was the guardian of her daughter, this minor. Mrs. Humphries had in her hands the sum of $3655.34 belonging to the minor, which she had on deposit at the Manhattan Savings Bank & Trust Company. She advised with one of the vice presidents of that institution about a proper investment for this fund of her ward. He recommended that she purchase $3600 of a series of $4500 of notes or bonds, secured by a mortgage on certain real estate. These securities were in the hands of Manhattan Securities Company, which appears to have been a subsidiary of Manhattan Savings Bank & Trust Company organized to handle particular business of the last mentioned concern. Pursuant to this advice, Mrs. Humphries bought $3655.34 worth of these notes or bonds, paying for them with her check, drawn as guardian, upon Manhattan Savings Bank & Trust Company in favor of Manhattan Securities Company.

Prior to the closing up of this transaction Mrs. Humphries and a representative of Manhattan Savings Bank & Trust Company or of Manhattan Securities Company went before the Judge of the Probate Court of Shelby County and procured an order from him approving this investment by the guardian of her ward's funds.

Leaving out of consideration the order of the Probate Court, the purchase of this note by the guardian was an unlawful diversion of her ward's money. "A guardian's authority to lend and invest his ward's funds is purely statutory. While the guardian is authorized to lend his ward's surplus funds upon real estate, under conditions outlined in the statute, Code, § 8496 [Shannon's Code, § 4280], he is not authorized to purchase an existing mortgage. One who sells such a mortgage to a guardian participates in an illegal transaction. Woodard v. Bird, 105 Tenn. 671, 59 S.W. 143." Freeman v. Citizens' National Bank, 167 Tenn. 399, 70 S.W.2d 25, 29.

Manhattan Savings Bank & Trust Company and Manhattan Securities Company were both fully advised that the money used to purchase the securities herein involved was a guardianship fund, that it was drawn out of bank by a guardian's check, and that the guardian acquired the securities for her ward. Under such circumstances, both these defendants were parties to the unlawful diversion of a trust fund and apparently recipients of a trust fund unlawfully diverted. Each of defendants therefore, became liable to the cestui que trust. Freeman v. Citizens' National Bank, supra; Woodard v. Bird, supra.

In the briefs supporting the petition for certiorari the quoted ruling of the two cases just cited is assailed and it is urged that such a ruling was not necessary to the decision in either case. However, Woodard v. Bird was decided nearly forty years ago and has since been regarded as authoritatively settling the proposition that a guardian was not authorized to purchase an existing mortgage with his ward's funds. This was so until the enactment of chapter 100 of the Public Acts of 1931. In Woodard v. Bird the court said [page 146]:

"Where a guardian deals directly with the borrower, he is personally familiar with the transaction from its inception to its conclusion, in the payment of the money and the acceptance of the mortgage, and is thus able to know that everything has been done for the security of the ward's estate. It is otherwise when he purchases an existing mortgage. What secret vice there is in it, he cannot know. Its consideration may be of such a character as to make it void under the law, even coming to his hands before maturity, for full value, and without notice of the vice inherent in it."

Upon the foregoing authorities it seems clear that the suit of this ward against the defendants named is well founded unless defendants are protected by the order of the Probate Court of Shelby County.

It is first urged that this Probate Court is a court of general jurisdiction and that its judgments and decrees are not subject to collateral attack. For this Magevney v. Karsch, 167 Tenn. 32, 65 S.W.2d 562, 92 A.L.R. 343, and other cases are cited. It is true that the Probate Court of Shelby County is one of general jurisdiction as to matters and things committed to such court. Nevertheless, the jurisdiction of this court is purely statutory and we must look to the statutes creating it to determine whether it had any authority to authorize a guardian to depart from statutory requirements as to the investment of his ward's funds.

The Probate Court of Shelby County was created by chapter 86 of the Acts of 1870. The relevant section of that Act is section 2, as follows:

"Sec. 2. Be it further enacted, That the said Court shall have original jurisdiction of all matters of probate, the administration of estates and orphans' business, embracing all of the subjects and powers enumerated in and conferred by Sections 4,201, 4,203, 4,204, 4205, and 4, 208, of the Code of Tennessee, and concurrent jurisdiction with the Chancery Courts of Shelby County over the persons and estates of idiots, lunatics, and other persons of unsound mind; and of proceedings for the partition or sale of estates by personal representatives, guardians, heirs, tenants in common, joint owners or coparceners, for the sale of lands at the instance of the creditors of the descendents, if the personal property is insufficient to satisfy the debts of the estate, and for the allotment of dower; and it is hereby vested with all the powers of a Chancery Court touching these matters. The judge of said Probate Court is also hereby vested with all the powers conferred by law upon Judges of the inferior Courts in this State. From the judgment of said Probate Court, an appeal shall lie directly to the Supreme Court of this State, and to no other Court."

The Act was amended by Chapter 141 of the Acts of 1881, entitled "An Act to amend the Act of 1870, chapter 28, now section 316h of Thompson & Steger's Code, establishing the Probate Court of Shelby county." Section 1 of this Act confers upon the Probate Court certain jurisdiction of a county court exercised at its quorum terms, and section 2 of the Act...