McCullam v. Third National Bank

• Decision Date: 08 November 1921
• Parties: FONTAINE McCULLAM, Trustee in Bankruptcy of MASTERS LUMBER COMPANY, Appellant, v. THIRD NATIONAL BANK, Respondent
• Court: Missouri Court of Appeals

237 S.W. 1051

209 Mo.App. 266

FONTAINE McCULLAM, Trustee in Bankruptcy of MASTERS LUMBER COMPANY, Appellant, v. THIRD NATIONAL BANK, Respondent

Court of Appeals of Missouri, St. Louis

November 8, 1921

Appeal from the Circuit Court of the City of St. Louis.--Hon. V. H Falkenhainer, Judge.

AFFIRMED.

Judgment affirmed.

Frumberg & Russell for appellant.

(1) The form and contents of the nineteen checks not introduced in evidence was sufficiently shown by the book entries of the Masters Lumber Company and the defendant. Clifford Banking Co. v. Donovan Com. Co., 195 Mo. 262. (2) In receiving the checks of the Masters Lumber Company the defendant had notice that the same were the property of the corporation and that S. M. Masters as president had no implied authority to use the same for his own benefit. Lee v. Smith, 84 Mo. 304; Clifford Banking Co v. Donovan Com. Co., 195 Mo. 262; Blake v Bank, 219 Mo. 644; Bank v. Edwards, 243 Mo. 553; Johnson v. Bank, 56 Mo.App. 257; Kitchens v. Teasdale Com. Co., 105 Mo.App. 463; St. Louis Charcoal Co. v. Lewis, 154 Mo.App. 548; Coleman v. Stocke, 159 Mo.App. 43; Bank v. Orthwein Com. Co., 160 Mo.App. 369; Reynolds v. Gerdelmann, 185 Mo.App. 176; Reynolds v. Whittmore, 190 S.W. 594; McCullam v. Buckingham Hotel Co., 199 S.W. 417; Napoleon Hill Cotton Co. v. Stix, 217 S.W. 323; O'Bannon v. Moerschel, 199 S.W. 1035. (3) Where a bank receives the negotiable instruments of the principal and credits the same to the individual account of the agent, it is liable for the amount of the same, either as for a conversion or for money had and received. Clifford Banking Co. v. Donovan Com. Co., 195 Mo. 262; Bank v. Edwards, 243 Mo. 553; Bank v. Orthwein Com. Co., 160 Mo.App. 369; K. C. Casualty Co. v. Bank, 191 Mo.App. 287; Strong v. Commonwealth Trust Co., 199 S.W. 1034; Bank v. McPherson, 102 Miss. 852; Morison v. Bank (1914), 3 K. B. 356.

Jones, Hocker, Sullivan & Angert and Vincent L. Boisaubin for respondent.

(1) All items prior to July 19, 1912, were barred by the Statute of Limitations. Sec. 1887, 1889, 1893, R. S. 1909; Garrett v. Conklin, 52 Mo.App. 654, 658; St. Charles Savings Bank v. Orthwein Inv. Co., 160 Mo.App. 369; Mabary v. Mabary, 173 Mo. pp. 437; Loeffel v. Hoss, 11 Mo.App. 133, 135; Chapman v. Hogg, 135 Mo.App. 654; 2 Wood on Limitations, sec. 278, p. 1429; 2 Wood on Limitations, sec. 278a, pp. 1432-3; 21 Am. & Eng. Enc. of Law, pp. 244; In re Wooten, 118 F. 670; Santa Rosa Nat. Bk. v. Barnett, 58 P. 85; Flynn v. Seale, 84 P. 263, 265; Kline v. Mohry, 4 Walk. 279; Strong v. Commonwealth Trust Co., 199 S.W. 1034 (distinguished). (2) The respondent bank was not liable for the alleged diversion of the funds, because: (a) Stanley M. Masters, president and general manager of the Masters Lumber Company, had the power and authority to sign company checks and direct the disposition of the proceeds thereon, in which respect he acted as trustee of the company's funds deposited by him to his credit in bank. (b) A bank may lawfully deposit trust funds to the personal credit of the trustees and must recognize the checks of the trustee when drawing against those funds. (c) The mere fact that the check itself deposited by the trustee, the proceeds of which are credited to his personal account, carries notice on its face that the funds collected thereon are trust funds, and the fact that the bank credits those funds when collected to the personal account of the trustee, are insufficient to constitute a conversion of those funds by the bank. (d) Between a trustee and beneficiary, the bank is not liable for the wrongful diversion of the funds deposited by the trustee, unless it knows that the trustee is actually misappropriating the funds and actually participates in the misappropriation. The bank neither knew of nor participated in any misappropriation by Masters. (e) Since the bank was not at any time a creditor of Masters and received none of the checks or proceeds thereof in payment of any debt owing it by Masters, but immediately credited Master's account with the proceeds of each check deposited, the rule which makes a creditor who receives a corporation's check in payment of an officer's personal obligation, party to the misappropriation, and, therefore, liable to restore the money is not applicable. Gate City Building & Loan Ass'n v. Bank, 126 Mo. 82; Ihl v. Bank of St. Joseph, 26 Mo.App. 129; Reynolds v. Girdelman, 185 Mo.App. 176; Kendall v. Fidelity Trust Co., 119 N.E. 861; United States F. & G. Co. v. Bank of Monrovia, 123 P. 352 (18 Cal.App. 437); Batchelder v. Central Bank of Boston, 73 N.E. 1024, 188 Mass. 25; Allen v. Puritan Trust Co., 97 N.E. 916, 211 Mass. 409; Safe Deposit & Trust Co. v. Diamond National Bank, 44 A. 1064, 194 Pa. 334; Hoad v. Kensington National Bank, 79 A. 714, 230 Pa. 508; Interstate National Bank v. Claxton, 80 S.W. 604, 97 Tex. 569; Martin v. Kansas National Bank, 72 P. 218, 66 Kan. 655; Penn. Title & Tr. Co. v. R. E. Loan & Tr. Co., 50 A. 998, 201 Pa. 299; Coleman v. First National Bank, 64 S.W. 93 Tex. Ct. Civ. App.; Bischoff v. Yorkville Bank, 218 N.Y. 106; L.R.A. 1915-C, 518, 528-530 (Note); Munnerlyn v. Augusta Savings Bank, 88 Ga. 333; National Bank v. Insurance Co., 104 U.S. 54; Goodwin v. Am. Nat. Bk., 48 Conn. 550; Gray v. Johnson, L. R. 3 Eng. & Ir. App. Cas. 1. (3) The bank, in cashing the checks and crediting the proceeds to Masters, was not liable to see that the money was properly applied to the company's purposes. The bank was never notified by the company of any limitation upon the right of Masters to withdraw the funds. Section 11927, R. S. 1909; Gate City Building & Loan Ass'n v. Bank, 126 Mo. 82; Sec. 11929, R. S. 1909. (4) Even if the bank could be said to have participated in a misappropriation by Masters of some of this money, based on the theory that is received it in discharge of some obligation owing it by Masters, still under the statute, appellant could not recover, since to do so the burden is upon apellant to prove that the bank actually knew that Masters had no authority to use the proceeds of the checks for that purpose. There is no evidence of that fact. The statute has merely enacted a new rule of evidence or procedure. Before the statute the officer was presumed not to have authority to use corporate funds for his personal purposes and the burden of proof was upon the recipient of the check to establish that he did have such authority. After the statute, the presumption is that the officer did have such authority and the burden of proof is upon the corporation to establish that the recipient of the check knew that he did not have such authority. The statute relating only to the remedy was operative at the time of trial. Laws 1917, pp. 143-144; Coleman v. Stocke, 159 Mo.App. 47; Bank v. Edwards, 243 Mo. 553; Reynolds v. Whitemore, 190 S.W. 594; McCullam v. Buckingham Hotel, 199 S.W. 417; St. Charles Savings Bank v. Orthwein, 160 Mo.App. 369; 8 Cyc, 925; O'Bryan v. Allen, 108 Mo. 227; 26 Am. & Eng. Enc. Law (2 Ed.), 695; Sheehan v. The Southern Ins. Co., 53 Mo.App. 351; Lovell v. Davis, 52 Mo.App. 342. Appellant is estopped to claim recovery for the funds in controversy. McCullam v. Buckingham Hotel, 199 S.W. 417 (distinguished); Napoleon-Hill Cotton Co. v. Oetter Gro. Co., 222 S.W. 876; Reynolds, Receiver, v. Third N. Bank (Supreme Ct. Mo., not yet reported); Pannonia Bldg. & Loan Ass'n v. Trust Co., 108 A. 240 (N.J.).

DAUES, J. Allen, P. J., and Becker, J., concur.

OPINION

DAUES, J.

--This is an action for money had and received, brought by plaintiff, the Appellant, as Trustee in Bankruptcy of the Masters Lumber Company, against the Respondent, Third National Bank, to recover $ 13,579 alleged to have been received by the Respondent at various times and in various amounts between October, 1911, and February, 1914, for the use and benefit of the Masters Lumber Company.

The case was referred to Henry S. Caulfield, Esq., as Referee, to try all issues in the case. The Referee found in favor of the Bank, and recommended a judgment for the defendant. Plaintiff filed exceptions to the report of the Referee, which, being overruled, the Court entered judgment for the defendant, in accordance with the recommendations in the report of the Referee. Plaintiff, failing to obtain a new trial, comes here on appeal.

This suit was commenced July 19, 1917, the petition being filed and the summons served upon the defendant on that date. The pleadings may well be comprehended from the summary in the Referee's report, which is substantially as follows:

"The petition alleges that the defendant bank is indebted to him as trustee in bankruptcy of the Masters Lumber Company, a corporation, upon an account for money had and received by the defendant for the use and benefit of said Lumber Company, at times and in amounts stated in the petition and aggregating the sum of $ 13,454, the said times being between and including October 16, 1911, and February 19, 1914.

"The plaintiff is informed and believes that defendant is entitled to certain credits and set-offs to be applied against said indebtedness, for moneys received by said Lumber Company for its use and benefit from defendant between October 1, 1911, and June 1, 1914, the various items and amounts whereof, as well as the dates of their receipt by said Lumber Company, plaintiff is unable definitely to state, and that plaintiff is ready and willing to give just and proper credits for all of said amounts as may be found due to defendant upon an accounting.

"Plaintiff prays that an accounting be had, and for judgment for such sum as may be found to be due to him thereon.

"At the hearing it was agreed that the petition should be treated as amended so as to include an item as follows: "Nov 15,...