Porterfield v. Farmers Exchange Bank

• Decision Date: 14 April 1931
• Docket Number: No. 29406.,29406.
• Citation: 37 S.W.2d 936
• Parties: KATHERINE PORTERFIELD, Guardian and Curator of Persons and Estate of DOROTHY PORTERFIELD and BYRON PORTERFIELD, Appellant, v. FARMERS EXCHANGE BANK OF GALLATIN, In Liquidation; S.L. CANTLEY, Commissioner of Finance, JOSEPH N. MARTIN, Deputy Commissioner of Finance, in Charge.
• Court: Missouri Supreme Court

37 S.W.2d 936

KATHERINE PORTERFIELD, Guardian and Curator of Persons and Estate of DOROTHY PORTERFIELD and BYRON PORTERFIELD, Appellant, v. FARMERS EXCHANGE BANK OF GALLATIN, In Liquidation; S.L. CANTLEY, Commissioner of Finance, JOSEPH N. MARTIN, Deputy Commissioner of Finance, in Charge.

No. 29406.

Supreme Court of Missouri.

Division Two, April 14, 1931.

Appeal from Daviess Circuit Court. — Hon. Ira D. Beals, Judge.

REVERSED AND REMANDED (with directions).

Nat G. Cruzen and Dudley & Brandom for appellant.

(1) If money is left with a bank to be loaned, the bank is an agent and not debtor. The bank is liable under such circumstances for losses due to negligence. A bank receiving a special deposit to lend on real estate security is guilty of a fraud if it lends the money to an insolvent or transfers to its principal notes owned by it which are not good. Landa v. Bank, 118 Mo. App. 356; Bank v. Fleming (Ky.), 44 S.W. 961; Miles v. Bank, 187 Mo. App. 249; Millinery Co. v. Trust Co., 251 Mo. 553; Bank v. Lyons, 220 Mo. 538; Evans v. Peoples Bank, 6 S.W. (2d) 656; Compton v. Trust Co., 279 S.W. 746; Greenfield v. Savings Bank, 5 S.W. (2d) 708; Bircher v. Sheet Metal Co., 77 Mo. App. 515; 7 C.J. 719, sec. 462. (2) The twenty thousand dollar check of Mrs. Porterfield's having been left with the bank under an express agreement that it was to be invested in real estate loans of the character required by the law to be taken by guardians and curators, constituted a trust fund and when the bank took it in payment for twenty thousand dollars of worthless notes of its own it took the trust fund without consideration and to that extent the assets of the bank were increased. Bartlett v. McCallister (Mo.), 289 S.W. 819; Nichols v. Bank of Syracuse, 220 Mo. App. 1026. (3) Where a trustee commingles trust money with his own so that it cannot be distinguished, equity will follow the money and take out the amount due the cestui que trust. Harrison v. Smith, 83 Mo. 210, 53 Am. Rep. 571; Midland Nat. Bank v. Brightwell, 148 Mo. 358, 71 Am. St. 608; Bank of Poplar Bluff v. Millspaugh (Mo. App.), 275 S.W. 582; Marshall v. Bank of Steele, 215 Mo. App. 365, 253 S.W. 15; Special Road Dist. v. Cantley, 8 S.W. (2d) 946. When all of the money arising from general deposits and from the receipt of a trust fund goes into one general mass and is used in the general business of the bank, then the whole assets of the bank are subject to a lien in favor of the cestui que trust. Nichols v. Bank of Syracuse, 220 Mo. App. 1026. (4) In order to have been a dissipation of the trust fund, it must be shown either that that fund can be traced specifically and that it has been dissipated, without augmenting the funds of the trustee, or that the general fund with which the trust fund was wrongfully mingled has all been dissipated and the entire estate of the insolvent trustee has arisen from other sources. Tufts v. Latshaw, 172 Mo. 373; Stoller v. Coats, 88 Mo. 514; Bircher v. Walther, 163 Mo. 461; Real Estate Co. v. Robinson, 199 Mo. App. 515; Schulz v. Bank of Harrisonville, 246 S.W. 614; Tierman v. Security B. & L. Assn., 152 Mo. 135; Horigan Realty Co. v. Flynn, 213 Mo. App. 591; Nichols v. Bank of Syracuse, 220 Mo. App. 1026. Where the fund is made up in part of the trustee's own funds and in part of the fund held in trust, the trustee's withdrawal from the fund is presumed to have been made from his own money, leaving in the fund not dissipated the money held in trust. Horigan Realty Co. v. National Bank, 273 S.W. 772; Lowell v. Brown, 280 Fed. 193; Nichols v. Bank of Syracuse, 220 Mo. App. 1026. (5) The plaintiff's money was a trust fund, was mingled with the general assets of the bank, increased the mass of the assets of the bank, it was held subject to the duty to invest it according to directions at the time it was placed in the hands of the bank. The commissioner in charge of the bank received sufficient assets to many times cover this trust fund and the plaintiff is entitled to a preferential allowance. Federal Reserve Bank v. Quigley (Mo. App.), 284 S.W. 164; Nichols v. Bank of Syracuse, 220 Mo. App. 1019; Johnson v. Farmers Bank, 11 S.W. (2d) 1092.

Laurance M. Hyde, L.B. Gillihan and J.W. Alexander for respondents.

(1) Decree appealed from is proceeding in equity for equitable separation of property. (a) Decree determines all claims, general or preferred, on evidence on all claims as one proceeding by agreement of counsel, and is a proceeding in equity for equitable separation of property. Bircher v. Walther, 163 Mo. 461. (b) Appeal is to modify portion of decree relating to appellant's claim. (2) Preference is based on right of property and not on compensation for its loss. 15 L.R.A. (N.S.), note 1100; Spokane Co. v. Natl. Bank, 68 Fed. 979. (3) Equity will follow fund as far as it can be identified only. Mayer v. Bank, 86 Mo. App. 422; Bank v. Brightwell, 149 Mo. 358; Harrison v. Smith, 83 Mo. 210; Phillips v. Overfield, 100 Mo. 466. (4) Where trust fund is dissipated or spent to pay obligations of trustee and is no longer in existence preference will not be granted. Nonstock Silk Co. v. Flanders (Wis.), 58 N.W. 383; State v. Bank of Commerce (Neb.), 75 N.W. 28; Jones v. Chesebrough (Ia.), 75 N.W. 97; Bradley v. Chesebrough (Ia.), 82 N.W. 472. (5) Bank presumed to have used own funds and not trust funds in making loans. State v. Foster (Wyo.), 38 Pac. 926, 29 L.R.A. 226; Leach v. Sanborn State Bank (Ia.), 212 N.W. 694. (6) Where mingled account is drawn to balance less than trust fund, the trust fund except as to balance is presumed dissipated and sums subsequently added are not attributed to trust fund. Beard v. Independent Dist., 88 Fed. 375; Boone Co. Natl. Bank v. Latimer, 67 Fed. 27; Crawford Co. v. Strawn, 157 Fed. 49, 15 L.R.A. (N.S.) 1100. (7) Missouri cases also hold that trust cannot be enforced where trustee has spent the trust fund. Horigan Realty Co. v. Flynn, 213 Mo. App. 591; Bircher v. Walther, 163 Mo. 461; Paul v. Draper, 158 Mo. 197; Pearson v. Haydel. 90 Mo. App. 253; Phillips v. Overfield, 100 Mo. 466. (8) Missouri rule is, also, that where it is shown that trust funds have gone into an estate claimant will be aided by the presumption that in the absence of any evidence to contrary, there being estate remaining greater than the fund, the trust funds are in commingled estate. Horigan Realty Co. v. Flynn, 213 Mo. App. 591; Harrison v. Smith, 83 Mo. 210; Evangelical Synod v. Schoeneich, 143 Mo. 652; Stoller v. Coats, 88 Mo. 514. See also Huntsville Trust Co. v. Noel, 12 S.W. (2d) 251, and State ex rel. v. Page Bank, 14 S.W. (2d) 597. (9) Evidence is conclusive that funds appellant deposited did not reach commissioner. (a) Appellant's check was deposited in the Fidelity National Bank & Trust Company. This account was used to pay the bank's debts. None of it came into the hands of the commissioner. This was a complete dissipation thereof. Gaty v. French, 3 S.W. (2d) 1043; In re Linn County Bank, 1 S.W. (2d) 206; Crawford Co. Comm. v. Strawn, 157 Fed. 49, 15 L.R.A. (N.S.) 1100. (b) Entire assets of bank which came into the commissioner's hands shown to have arisen from other sources than appellant's deposit. (10) Appellant affirmed transaction as a relation of debtor and creditor. (a) Guardian's deposit creates merely relation of debtor and creditor. Paul v. Draper, 158 Mo. 197. (b) Making claim for general deposit ratified original transactions as a general deposit. Stoller v. Coats, 88 Mo. 514. (c) To rescind transaction appellant was required to return what she received and having failed to do so has not made a case. 13 C.J. 620, secs. 679, 680, 681; Girdner v. Alley, 256 S.W. 832; Green v. Life Ins. Co., 159 Mo. App. 277; Robinson v. Siple, 129 Mo. 208.

WESTHUES, C.

In this proceeding Katherine Porterfield, guardian and curator of her minor children, Dorothy and Byron, seeks to impress upon the funds and assets of the defunct bank mentioned in the title a preferred claim in the sum of $20,000. The trial court disallowed the claim in toto, either as preferred or general. Plaintiff appealed.

In order to more fully understand the actions of the parties connected with this case, a short history of the matter must be related. Plaintiff's husband, a physician, practicing medicine at Jamesport, Missouri, and Dr. R.V. Thompson, cashier of the defunct bank, had been on friendly terms for many years, consulting each other frequently with reference to their medical work. Dr. Thompson, according to the evidence, at one time lived at Jamesport and was an officer of the Commercial Bank of Jamesport. Dr. Porterfield also consulted Dr. Thompson on business matters and did his banking business with the Commercial Bank, of which Dr. Thompson was an officer.

Dr. Porterfield was struck and killed by lightning in April, 1921, leaving the plaintiff, his wife, and two small children, Dorothy and Byron, to mourn his unfortunate and untimely death. Dr. Porterfield carried a $10,000 life insurance policy with a double indemnity clause. The children were named beneficiaries in the policy. The plaintiff, after her husband's death, went to Dr. Thompson, who was then cashier of the Farmers Exchange Bank of Gallatin (the bank in liquidation in this case), for the purpose of seeking advice with reference to the estate left by her husband. Dr. Thompson accompanied her to the probate court office and aided plaintiff in having herself appointed guardian and curator for the minor children, and administratrix of her husband's estate. Dr. Thompson signed the bond required by the probate court. The probate judge at that time informed plaintiff and Dr. Thompson that the law required money in the hands of a curator and guardian to be invested in government bonds or first-mortgage real estate securities. Plaintiff then collected the $20,000 from the insurance company and deposited it in the Commercial Bank at Jamesport to her credit as guardian...