Martin v. First Nat. Bank of Rush City

• Citation: 51 F.2d 840
• Decision Date: 10 August 1931
• Docket Number: No. 2045.,2045.
• Parties: MARTIN v. FIRST NAT. BANK OF RUSH CITY.
• Court: U.S. District Court — District of Minnesota

51 F.2d 840 (1931)

MARTIN v. FIRST NAT. BANK OF RUSH CITY.

No. 2045.

District Court, D. Minnesota, Third Division.

August 10, 1931.

R. C. Andrews, of Minneapolis, Minn., for plaintiff.

S. B. Wennerberg, of Center City, Minn., and George H. Sullivan, of Stillwater, Minn., for defendant.

NORDBYE, District Judge.

The above-entitled matter came on for trial before the undersigned, one of the judges of the above-named court, without a jury, at Duluth, Minn., on the 7th day of May, 1931; R. C. Andrews of Lindstrom, Minn., appearing in behalf of the plaintiff, and S. B. Wennerberg, Center City, Minn., and George H. Sullivan, Stillwater, Minn., appearing in behalf of the defendant. The court having heard the evidence adduced at said trial, and upon all the files and records herein and the arguments and briefs submitted to said court, makes the following findings of fact and conclusions of law.

Findings of Fact.

I. That Peter J. Engberg, above named, is the duly appointed, qualified, and acting guardian of the estate of Ernest L. Martin, incompetent, and that letters of guardianship upon said estate were duly issued to him on January 25, 1928, by the probate court in and for the county of Chisago and state of Minnesota.

II. That defendant, the First National Bank of Rush City, a corporation (hereinafter called the Bank), is a national banking association under the laws of the United States of America.

III. That plaintiff, Ernest L. Martin, was duly adjudged incompetent by said probate court of Chisago county on December 9, 1919, and was duly committed to the State Hospital for the Insane at Rochester in said state, and was later transferred to the United States Hospital for Disabled Veterans at St. Cloud, Minn., where he is now in confinement.

IV. That thereafter, and on the 7th day of April, 1920, one G. M. Ericson was appointed special guardian of the estate of said Ernest L. Martin, incompetent, by the probate court aforesaid, and during all the times hereinafter mentioned, and until January 4, 1928, said G. M. Ericson having qualified as such guardian continued to act as such, and to have custody and possession of the estate, property, and money of said incompetent, and at the time of his appointment as special guardian of plaintiff's estate, said G. M. Ericson was a stockholder and director, and the cashier of said defendant Bank, and was later made a vice president of said Bank, and during all of the time that said G. M. Ericson was acting as special guardian of plaintiff's estate, and in possession of the same and plaintiff's property and money, said G. M. Ericson was the principal managing officer of defendant Bank, and was directly and solely in charge of the affairs and daily business of said Bank.

V. That subsequent to his appointment as such special guardian, the said Ericson opened an account with said Bank for the deposit therein of plaintiff's money and credits, his account being known and designated on the records of said Bank as an account with "Estate of Ernest L. Martin, Incompetent." That of the money and credits coming into the hands of Ericson in his capacity as special guardian of plaintiff's estate, being the property of plaintiff, the sum of $7,843.64 was paid by the government of the United States to plaintiff on account of a compensable injury suffered by him while in the army and service of the United States, and the sum of $4,600 was paid by the government of the United States to plaintiff on account of his policy of insurance with said government. That all of the payments made to plaintiff by the government of the United States and coming into the hands of said Ericson as special guardian were made by check drawn on the Treasurer of the United States and deposited by the said Ericson in said Bank and credited to said trust account hereinbefore mentioned.

VI. That said Bank had actual knowledge that all of the funds coming into the hands of Ericson as special guardian of plaintiff's estate, and the deposits to the credit of plaintiff's said account, were held in trust for plaintiff and that the said Ericson as special guardian had no authority to withdraw any part of the deposit to plaintiff's credit except in the ordinary and usual manner of withdrawing funds from accounts in a depository bank and only for such purposes as were authorized by law and the purposes of said guardianship.

VII. That the St. Croix Valley Land & Loan Company (hereinafter referred to as the Land Company) is a corporation organized and existing under the laws of the state of Minnesota, and that during all the times herein mentioned, the said G. M. Ericson was stockholder and director of said Land Company and its principal manager and executive officer. That the said Land Company was also a depositor of said Bank and carried a checking account therein to which deposits were credited from time to time in favor of said Land Company.

VIII. That said G. M. Ericson was also a depositor in said Bank in his individual capacity and carried a checking account therein during all the times herein mentioned.

IX. That both Ericson and the Land Company during the times herein mentioned were in financial straits, and during this period Ericson habitually made overdrafts on his checking account. Such overdrafts were customarily permitted by said Bank, and the Bank customarily and regularly made loans by way of overdrafts to said Ericson without objection by the other officers or directors of said Bank.

X. That on May 10, 1921, less than a year after said Ericson became custodian of the fund belonging to plaintiff, he drew out of said fund the sum of $1,200 by way of a debit slip on said account, and credited $400 thereof to his own personal account and $800 to the account of the Land Company. That on February 4, 1922, Ericson's personal account was overdrawn in the sum of $597.66, and on said date the said Ericson drew by debit slip from plaintiff's account the sum of $700 and by credit slip credited to his personal account the sum so drawn in order to cover the overdraft that existed there. That on March 24, 1923, an overdraft of $1,005.24 existed in Ericson's personal account, and on said date he drew by debit slip on plaintiff's account the sum of $500, and of the sum so withdrawn, the sum of $388.34 was credited to Ericson's personal account to apply on the overdraft that existed there. On August 11, 1923, $500 was withdrawn from the plaintiff's account; $381.71 of the amount so withdrawn was applied on an overdraft that existed in Ericson's account in the sum of $381.71. On August 16, 1923, there was an overdraft in the account of the Land Company in the sum of $54.63, and said Ericson caused a debit slip to be drawn on plaintiff's account in the sum of $1,500 and by credit slip credited the Land Company's account in the amount so drawn. Thereafter a large number of withdrawals were made by Ericson from the plaintiff's account and deposited in his personal account to cover his overdrafts or to increase the funds in his own personal account. A considerable number of withdrawals and deposits were made by debit and credit slips, but the use of debit slips in connection with withdrawals from plaintiff's account was not limited to misappropriation of the funds in the estate. Many legitimate claims against this estate were paid by this method; that is, Ericson would draw a debit slip against the estate funds and pay a legitimate bill with cash of the Bank and thereafter credit the cash account with the amount debited against plaintiff's account.

XI. That in the latter part of 1925, the Land Company was in dire financial circumstances and had no funds with which to pay checks drawn on its account in the defendant Bank. That for some period of time in the years 1925 and 1926, checks of the Land Company aggregating $418 drawn on the defendant Bank were carried as cash items by the bookkeeper at the suggestion of said Ericson, and then on March 2, 1926, with the intent on his part and on the part of the Land Company to misappropriate the same, Ericson ordered the bookkeeper to charge these checks to the account of the plaintiff herein and thereafter such charge was accordingly made.

XII. That between May 10, 1921, and May 29, 1926, with the intent to misappropriate the same for his use and for the purpose of paying indebtedness due the Bank by way of overdrafts, the said Ericson withdrew the sum of $7,775 from plaintiff's account. That $5,475 of said sum was credited to Ericson's personal account and $2,300 was credited to the account of the Land Company. That $2,928.28 of said sum so withdrawn was applied in payment of overdrafts due the defendant Bank from Ericson and the Land Company, and of the said sum of $7,775 so withdrawn, the sum of $6,575 was deposited to the credit of Ericson's personal account and to the credit of the Land Company subsequent to and including February 4, 1922, when the first application of trust funds was made to the payment of overdrafts.

That attached to and made a part of these findings of fact, with the same force and effect as if set forth in full herein, is a statement referred to during the trial as "Plaintiff's Exhibit G,"¹ which sets forth the dates and amounts and the application of the various withdrawals made by the said Ericson between May 10, 1921, and May 29, 1926.

XIII. That the said Ericson had no authority as guardian to withdraw any sum from plaintiff's said account except for purposes permitted by law and for the ordinary and usual purposes of his trust. That all of said withdrawals were made by said Ericson while acting as the sole and exclusive officer in charge of defendant Bank and the sole and only officer or agent of the defendant having any knowledge thereof. That all of the said withdrawals and unauthorized debits were wrongful and unlawful diversions and misappropriations of trust funds belonging to plaintiff, and in repaying to the Bank the overdrafts...