School Dist. of City of Sedalia, Mo., v. De Weese

• Decision Date: 22 March 1900
• Citation: 100 F. 705
• Parties: SCHOOL DIST. OF CITY OF SEDALIA, MO., v. DE WEESE.
• Court: U.S. District Court — Western District of Missouri

100 F. 705

SCHOOL DIST. OF CITY OF SEDALIA, MO., v. DE WEESE.

United States Circuit Court, W.D. Missouri, Western Division.

March 22, 1900

Charles E. Yeater and John H. Bothwell, for plaintiff.

William S. Shirk, for defendant.

PHILIPS District Judge.

This cause has been submitted to the court without the intervention of a jury. In 1883 the school district of Sedalia, Mo., issued bonds in the sum of $30,000, to run for 20 years, redeemable at the option of the city at any time after 5 years. In 1889 the school district elected to redeem said bonds by the issue of funding bonds at a less rate of interest. These funding bonds were accordingly executed and issued in due form, and were placed in the hands of James C Thompson to sell, and out of the proceeds thereof to redeem the old bonds. Thompson made a sale of the new bonds, but instead of redeeming the old bonds with the proceeds thereof he appropriated the proceeds to his own use; and, instead of taking up the old bonds and turning them over to the treasurer of the school board after he had obtained them by purchase from the holders, he resold part of the bonds to Marshall & Co., Eastern capitalists, for whom he was acting as agent in loaning money on real estate and other securities. These sales to Marshall & Co. were as follows $5,000 on May 26, 1893, for $5,020.83; $5,000 on June 2, 1893, for $5,025; $3,000 on June during the time of these transactions was the active cashier of the First National Bank of Sedalia, Mo. The school district, having been compelled to pay these old bonds thus acquired by Marshall & Co., brought this action against the receiver of said bank to recover the amount thus received by Thompson on said bonds, on the theory that the bank received the proceeds with knowledge of the fact of Thompson's dereliction, and was guilty of conversion. The defendant pleads in defense thereof, first, that the bank was not guilty of such conversion; that it did not receive and enjoy the proceeds of the resale of said bonds; and that the cause of action, if any, is barred by the statute of limitations.

The court finds from the facts and circumstances in evidence that Thompson acted as the agent of the school board in effecting the sale of the funding bonds and taking up the old bonds. It also finds that, in negotiating and selling the old bonds to Marshall & Co., Thompson was acting in his individual capacity, and not as cashier of the bank, and that the bank had no knowledge whatever of the acts and conduct of Thompson in those transactions, unless it can be maintained, as matter of law, that, from the mere fact of Thompson at the time being cashier and active managing officer of the bank, his knowledge is to be imputed to the bank. The evidence shows that, under the direction of Thompson, Marshall & Co. remitted the proceeds of the first two sales to the Seaboard National Bank of New York, to the credit of the First National Bank of Sedalia, and that thereupon Thompson made an entry on the books of the bank showing a charge to said Seaboard National Bank with the proceeds of such sales. In case of the third and fourth sales, Thompson drew upon Marshall & Co. therefor, and, by indorsement, directed the National Bank of the Republic of St. Louis to place the amounts to the credit of the First National Bank of Sedalia, which was done accordingly. And the First National Bank of Sedalia, by entry on its books, charged the amounts to the National Bank of the Republic. Had the transaction ended here, leaving these proceeds to the credit of the First National Bank, there would be tangible ground for holding that, the bank having received the proceeds thereof without consideration, the plaintiff should recover therefor; but the evidence shows, beyond question, that, as soon as the proceeds of these different sales were thus passed to the First National Bank of Sedalia, Thompson transferred them to his own individual account. This fact is clearly established by entries in the books of the bank, as also deposit slips and entries made in Thompson's individual pass book, put in evidence, from which the inference is clear that the credit received by the First National Bank for the proceeds was merely a matter of jugglery by Thompson, and passed over at once to the use and benefit of Thompson; and the practical result of the transactions was that Thompson got the benefit thereof, and not the bank. It paid no consideration therefor, and, as between it and Thompson, it was not entitled thereto; and, in contemplation of law, the transaction had no other legal effect then if the bank had collected the proceeds directly from Marshall & Co., and, on the day it took credit on its books therefor, had passed the same over to the credit of Thompson. The only permissible theory, as applied to the instance of this case, upon which the plaintiff could hold the bank for the proceeds of the bonds, would be that the bank received the same and mingled it with its own property, thereby enlarging its assets and receiving the benefit thereof. Even if the bank did receive a temporary credit for these proceeds with its exchange banks in New York and in St. Louis, it immediately accounted therefor to Thompson, the rightful owner as between it and Thompson. So that if the plaintiff were undertaking, by bill in equity, to follow the proceeds of these funds into the assets of the bank, it would utterly fail, because the books would show, as the other evidence, that the funds were transferred to the individual account of Thompson, who alone got the benefit thereof.

The evidence shows that, as to the first block of bonds, the proceeds were paid by Thompson to the Continental National Bank upon his individual note to the bank. This is shown by his own check, and the draft bought with it, and the credit indorsed on the back of his individual note to said Continental National Bank. As to the proceeds of the second sale, of $5,025, the evidence does not show what Thompson did with it. His individual account on the books of the bank shows that he drew it out of the bank on his private account. It is true that when Thompson drew for the amount of the proceeds on Marshall & Co. in favor of the National Bank of the Republic, which drafts were paid to the National Bank of the Republic, to the credit of the First National Bank of Sedalia, the exchange account of the First National Bank of Sedalia with the National Bank of the Republic was overdrawn. But this condition of the account between the two banks was only temporary. It vacillated thereafter. But, as already shown, it was not the intention of Thompson to turn the proceeds of these sales over to the First National Bank, but to transfer the credit thereof in his own favor, which he at once carried out, as shown by the books of the bank, so that every dollar of these sales went to the benefit of Thompson. There was nothing whatever on the books of the bank when they passed into the hands of the receiver, in 1894, to give any notice to the bank, as such, as to the source of the transactions between Thompson and Marshall & Co., to affect the bank with notice that it was the proceeds of a wrongful conversion by Thompson of said school bonds. The contention of plaintiff's counsel is that the knowledge which Thompson had should be imputed to the bank, because he was the cashier of the bank, and its active managing officer. The rule on this subject, as it exists in this state, is very succinctly stated by Judge Black in Bank v. Lovitt, 114 Mo. 525, 21 S.W. 825, as follows:

'It is a general rule that notice of a fact acquired by an agent while transacting the business of his principal is notice to the principal, and this rule applies to banking and other corporations as well as to individuals. It is the duty of the agent to communicate to the principal information thus acquired, which would affect the rights of the principal, and the presumption is that the agent has performed his duty in this behalf. If he has not, still the principal should be charged with notice of the existence of such facts thus coming to the knowledge of the agent, because he selects his own agent, and confides to him the particular business. Story, Ag. Sec. 140. But the reason of the rule ceases when the agent acts for himself, and not his principal, and the rule itself ought not to apply in such a case. Accordingly it has been held by this court that knowledge of an unrecorded deed acquired by officers of a corporation, while acting for themselves, and not for the corporation, will not be imputed to the corporation. Johnston v. Shortridge, 93 Mo. 227, 6 S.W. 64. An officer of a banking corporation has a perfect right to transact his own business at the bank of which he is an officer, and in such a transaction his interest is adverse to the bank, and he represents himself, and not the bank. The law is well settled that, when an officer of a corporation is dealing with it in his individual interest, the corporation is not chargeable with his uncommunicated knowledge of the facts derogatory to his title to the property which is the subject of the transaction. Tayl. Corp. (2d Ed.) Sec. 210; 1 Wat.Corp. § 125; Frenkel v. Husdon, 82 Ala. 158, 2 So. 758; Wickersham v. Zinc Co., 18 Kan. 481; Barnes v. Gaslight Co., 27 N.J.Eq. 33; Innerarity v. Bank, 139 Mass. 332, 1 N.E. 282; Eyerman v. Bank, 13 Mo.App. 289; Bank v. Froman (Mo. Sup.) 31 S.W. 769; Bank v. Babbidge (Mass.) 36 N.E. 462; Bank v. Christopher, 40 N.J.Law, 435.'

See, also, Benton v. Bank, 122 Mo. 339, 26 S.W. 975.

It would be a far-reaching and dangerous doctrine to establish when the cashier of a bank, acting in his individual capacity, and for his own aggrandizement, receives in trust, as the agent of a third party, property...