Smith v. Des Moines National Bank

• Decision Date: 08 February 1899
• Citation: 78 N.W. 238,107 Iowa 620
• Parties: MATY A. SMITH v. DES MOINES NATIONAL BANK, Appellant
• Court: Iowa Supreme Court

78 N.W. 238

107 Iowa 620

MATY A. SMITH v. DES MOINES NATIONAL BANK, Appellant

Supreme Court of Iowa, Des Moines

February 8, 1899

Appeal from Polk District Court.--HON. W. F. CONRAD, Judge.

SUIT in equity to establish a trust upon certain funds in the hands of the defendant, and for judgment for the amount of plaintiff's claim. The answer was, in effect, a general denial. Trial to the court, decree for plaintiff as prayed and defendant appeals.

Reversed.

Chas L. Powell for appellant.

C. C Cole for appellee.

OPINION

DEEMER, J.

The Lewis Investment Company was a corporation organized under the laws of this state, for the purpose of making loans from its own funds, as well as for investing and loaning money belonging to others. Its capital stock was one hundred and fifty thousand dollars. It selected the Des Moines National Bank as its banker, and opened an account with it in May of the year 1894. With this bank it did a large business, and its transactions were quite similar to those of the other customers of the bank. Money was borrowed from time to time, and large amounts were deposited in the name of the corporation, which were checked out in the usual course, as needed. All the business with the bank was done in the name of the corporation, with the one exception to be hereinafter noted. In the month of December, 1895, the bank held three notes of the company, one for six thousand dollars, and two for ten thousand dollars each, representing loans made at different times to the investment company. These loans were made in reliance, in part, upon the security afforded by the company's daily balance, which had always been quite large. The six thousand dollar note matured December 5, 1895, and, there being to the credit of the company on that day the sum of six thousand one hundred and eighteen dollars and twenty-one cents, the bank charged the note to the account, canceled the instrument, and delivered it to the investment company on the seventh of December. After this had been done, a check of the investment company for three thousand five hundred and eighteen dollars and five cents was presented, and payment refused for want of funds. The manager of the company then began negotiations with the bank to secure the payment of the check, claiming that it represented money belonging to an insurance company, which must be paid. The bank finally made a new loan to the company for the sum of three thousand five hundred dollars, which was credited to that company, and the check which had been refused was thereafter paid. The account was closed and balanced on December 11th, by check issued by the investment company for the balance then due, to-wit, one hundred and eighty-seven dollars and thirty-three cents. On the twenty-fourth of December, 1895, the investment company failed, and its business was closed up, with very small returns to its creditors. Plaintiff claims that one thousand six hundred and twenty-three dollars and thirty-three cents of the amount of the investment company deposit which was applied upon the six thousand dollar note belonged to her, was held in trust by the investment company, and received by the bank with knowledge of its trust character, and that she is entitled to recover that amount from the bank.

The evidence shows that the investment company had loaned for plaintiff the sum of one thousand six hundred dollars, and had taken as security therefor a mortgage upon a house and lot in the city of Omaha, Nebraska, and that a policy of fire insurance on the house was assigned to plaintiff as additional security. The house was destroyed by fire, and the insurance company sent to the investment company a draft for one thousand eight hundred and twenty-five dollars and thirty-three cents in payment of the loss. The draft was made payable to the investment company, and, after indorsement by that company, was deposited in the bank, with some other items belonging to the investment company, on the second day of December, 1895, as hereinbefore stated. Lewis, the manager of the investment company, testifies that, before making the deposit, he had a conversation with the president of the bank, in which he told the president that he was collecting money for a great many people, and that his company must not be placed in the attitude of paying its debts with money belonging to others, and spoke especially of a certain five thousand dollar transaction that he wished to protect. He further says that the president of the bank agreed to renew the six thousand dollar note, which was shortly to mature, and said "that they would not do anything mean, and that I could rely upon the note being renewed." Lewis further says that, on the strength of this agreement, he made deposits aggregating nearly nine thousand dollars, composed of money belonging to others as well as that of the company. He also says that, when he learned of the application of the deposits to the payment of the six thousand dollar note, he very seriously objected, and that the check which the bank refused to pay related to the very item which he had specifically referred to in his conversation with the president of the bank. He further testified that he protested very strongly against the change made in the agreement to renew, and that the president of the bank then said they could not renew, and had applied the funds in the deposit account upon the note. The president of the bank admits having notice that five thousand dollars of the deposit of December 2d belonged, in part at least, to an insurance company, and that he agreed to protect the investment company's check which was then outstanding, which he did on the next day. He further says that the check which was refused was one issued by the company, and that he had not agreed to pay or protect it. He further says that he had no notice of any kind that any of the money deposited by the investment company, except the five thousand dollars, belonged to others, and specially denies that he had any notice of any kind that any part of it belonged to plaintiff. Further, he said that the bank refused to renew the six thousand dollar note unless the investment company would give further security, and that, as the investment company was unable to furnish this security, no agreement for renewal was ever consummated, and that the bank applied sufficient of the deposit account to liquidate the note without knowledge that any part of it belonged to plaintiff or any person other than the investment company.

As the burden is upon appellee to show notice to the bank of her interest in the funds deposited by the investment company, and as the evidence as to notice consists in a loose and rather unsatisfactory statement made by the manager of the company, which is flatly denied by the president of the bank, we are constrained to believe there was no notice of the character of these funds. Whether such notice is essential to plaintiff's recovery, we will hereafter determine.

Appellant contends that the investment company had no authority to receive the money due plaintiff from the insurance company, and was not her agent either for the collection of the note and mortgage upon the Omaha property or the insurance money due upon the house. It is doubtless true that the investment company had no authority to collect either the note and mortgage or the sum due on the policy of insurance, and it is not claimed that it had any such authority. The claim is that the plaintiff's money was sent to the investment company, and was by it deposited in the bank, with knowledge that it belonged to plaintiff. Proof of the investment company's agency to receive the money is not essential to the establishment of a trust. If it received the money without authority, or even wrongfully, a trust arose as between it and the true owner of the money; for it is a general rule that any one wrongfully possessed of an estate becomes a trustee ex maleficio, and is answerable to the party injured as cestui que trust. 2 Pomeroy Equity Jurisprudence, section 1047. Moreover, if proof of agency were needed to establish a trust, the evidence adduced is sufficient to show ratification by plaintiff of the conduct of the investment company in receiving the insurance money. Such ratification is equivalent to prior authority, and need not be specially pleaded. Long v. Osborn, 91 Iowa 160, 59 N.W. 14.

The money received by the investment company was impressed with a trust in favor of plaintiff to the extent of her note and mortgage against the Omaha property, and the only question which remains is, is she entitled to have a trust declared upon that amount of the money deposited by the Lewis Investment Company, in the absence of notice to them of the character of the money received? Had the bank received it in good faith and for value, there is no doubt that it would not be responsible to the plaintiff. Stephens v. Board, 79 N.Y. 183; Dillaye v. Bank, 51 N.Y. 345; Trull v. Bigelow, 16 Mass. 406; Peebles v. Reading, 8 Serge. & Rawle 484. But may a bank, having no notice of the trust character of the funds it receives, apply them upon a note of the depositor which is due at the time the application is made, and escape responsibility to the cestui que trust? This is the pivotal inquiry in the case, and we find, in looking into the decided cases, that they are in apparent conflict upon this proposition. If the bank had simply received the money as an ordinary deposit, and had not applied it upon the debt due from its depositor, there is no doubt that the person for whom the depositor held the money could follow it. National Bank v. Insurance Co., 104 U.S. 54, 26 L.Ed. 693; Bank v. Peters, 123 N.Y. 272 (25 N.E. 319); Bank v. King, 57 Pa. 202; Van Alen...