Smith v. the Security Bank & Trust Co.

• Decision Date: 04 July 1938
• Docket Number: 4-5139
• Citation: 119 S.W.2d 556,196 Ark. 685
• Parties: SMITH v. THE SECURITY BANK & TRUST COMPANY
• Court: Arkansas Supreme Court

119 S.W.2d 556

196 Ark. 685

SMITH v. THE SECURITY BANK & TRUST COMPANY

4-5139

Supreme Court of Arkansas

July 4, 1938

Appeal from Greene Circuit Court; Neil Killough, Judge; reversed.

Judgment reversed and cause remanded.

Cecil Grooms and W. W. Bandy, for appellants.

Rhine & Rhine, for appellee.

DONHAM J. Mr. Justice MCHANEY, disqualified and not participating.

OPINION

DONHAM, J.

Harry Kupper, doing business under the trade name of Paragould Auction Sales & Commission Company, engaged in selling cattle at auction during the year 1936 at Paragould, Arkansas. Persons having cattle for sale would carry them to Paragould and turn them over to Kupper for sale at auction, paying him 4 per cent. of the sales price as commission for his services. The sales were held once each week and continued practically throughout the year of 1936.

Kupper carried an account in the trade name with the appellee, The Security Bank & Trust Company. He had an arrangement with appellee, whereby he would deposit on each auction sales day the amount of money he received as the purchase price of the cattle he sold at auction. He had an agreement with appellee whereby appellee agreed to cash all checks drawn on said account and made payable to the owners of the cattle sold at auction. These checks represented the full sales price of the cattle, less 4 per cent., said 4 per cent. being the commission deducted by Kupper for his services in selling the cattle.

As stated, these auction sales continued during the year 1936 until the latter part of December. A few days prior to December 30th at a conference between Kupper's representative and the officials of the bank, it was ascertained that Kupper, because of his own private transactions, had become indebted to different persons in the sum of $ 1,800, for which he had drawn checks on the account carried with the bank in the name of said Paragould Auction Sales & Commission Company. At the time of this conference, there was a balance of only $ 280 on deposit in the bank to the credit of said account. At the time of said conference, the bank agreed to loan Kupper $ 500 and did loan him this amount, taking his personal note for same. The last auction sale was to be held on December 30th. At the time of this conference, it was agreed between the bank and Kupper that whatever Kupper owed the bank should be paid out of the funds arising from the last auction sale. Between the time of the conference and the day following the auction sale, the bank cashed $ 1,020 of the personal checks of Kupper, issued and dated several days prior to the date of said last auction sale. The amount of money received by Kupper for the sale of stock at said auction sale on December 30, 1936, was $ 3,400. He carried said amount to the appellee, bank, and deposited same in the account carried in the name of Paragould Auction Sales & Commission Company. When this was done, the bank appropriated a sufficient amount of said account to pay its $ 500 note and the $ 1,020 which it had paid out on the checks given by Kupper in the transaction of its private business. This was in accordance with the agreement had with Kupper a few days prior to the last auction sale. The bank knew all along that the funds being deposited in this account were funds derived from the sale of cattle which did not belong to Kupper, but which he sold at auction for others. The bank, throughout the time said auction sales company had been doing business, had cashed all the checks that said company had drawn on its account in payment of the amounts due the owners of the cattle which said auction sales company had sold. As stated, it knew all along that the funds deposited in said account were trust funds, that is, that they were funds which had been derived from the sale of the property of others sold at auction. Furthermore, it knew that the $ 3,400 deposited to the credit of said account, being the last deposit made to said account, were funds derived from the sale of cattle and that said cattle did not belong to Kupper, but that he, under his trade name, had sold same for others, charging a commission of 4 per cent. therefor.

It is true that the payment of the note and the amount due the bank for having taken up these personal checks of Kupper to the extent of $ 1,020 was in accord with the agreement which Kupper had with the bank several days prior to the date of the last auction sale. But, the question here is, did the bank and Kupper have any right to make such agreement with reference to the funds arising from the auction sale, both knowing that the funds did not belong to Kupper, but were trust funds arising from the sale of cattle owned by others? When the cattle were sold, the practice was to give the owners of the cattle checks drawn by Kupper on the account carried in the name of his auction sales company, instead of paying them in cash. Parties to whom the checks were given would then go to the appellee bank and cash their checks. The owners of all stock sold at auction on December 30th were given these checks for the price at which their cattle sold, less 4 per cent. Some of them did not go to the bank immediately to cash their checks; and when, a few days later, they presented their cheeks at the bank they were turned down, the bank having appropriated in the meantime a sufficient amount of the last deposit of said auction sales company to pay the $ 500 note due it and $ 1,020 which had been used to take up the personal checks of Kupper issued and dated several days prior to the date of said last deposit.

Those whose checks were not paid and who have brought the suit resulting in this appeal held checks in the sum of $ 1,080. Suit was filed in the Greene circuit court for this amount. The court, sitting as a jury, made certain findings of fact. Said findings of fact are here set out in full:

"1. Harry Kupper, under the trade name of the Paragould Auction Sales & Commission Company, in the latter part of 1935 opened in Paragould an auction sale business, selling at auction for cash livestock and other property brought to him by his patrons generally receiving as compensation 4 per cent. of the proceeds of such sale.

"2. In the early part of 1936 he opened an account with the defendant bank under said trade name, which account was closed on the 31st of December, 1936.

"3. During the life of this account, Kupper, once a week on Wednesday, held an auction sale as aforesaid, such sale commencing at 10 o'clock in the forenoon and ending around six o'clock in the afternoon, and after the sale closed carried the proceeds of such sale in cash to the defendant bank. This money was left during the night of the sale in the vault of the defendant, and the next morning when the bank opened for business, said money was deposited and said auction sales company given credit therefor.

"4. There was only one account, and Kupper deposited in this account both his personal and individual funds and the funds received in his capacity as auctioneer aforesaid.

"5. On a sales day the owners of the property to be sold at auction would bring it in, turn it over to Kupper to be auctioned off, and each would receive a check on defendant bank for the net proceeds of the property sold, this being the sum remaining after deducting the 4 per cent. due the auctioneer.

"6. There was an agreement between Kupper and the defendant that all such purchase price checks presented on the day of sale would be paid by the defendant bank on presentation.

"7. The defendant knew that the auction sale day was on Wednesday each week.

"8. The auction sale always made money, and Kupper got in debt and went into the red at defendant bank only after he began to speculate on his own hook in buying and selling livestock.

"9. In buying and selling livestock on his own hook, in payment of such purchases he gave checks to the owners on defendant bank for the purchase price, and these checks were taken care of by the defendant.

"10. After Kupper began giving these checks for livestock purchased by him individually he drew checks on defendant largely in excess of funds in the defendant bank to his credit and on Saturday or Monday prior to the weekly auction sales on Wednesday, John Hitchcock, his bookkeeper and the main witness in this case for plaintiffs, would confer with defendant and make arrangements for taking care of these checks.

"11. On Saturday or Monday prior to the December 23rd, a week before the last auction sale day which was December 30th and the one in question here, said bookkeeper Hitchcock, borrowed $ 1,000 from defendant here, giving a note signed by Kupper for the amount, to take care of these checks so drawn in excess of his credit on account in defendant bank.

"12. On Saturday or Monday just prior to the following sales day, Wednesday, December 30, the day plaintiffs' property was sold and the proceeds thereof deposited in defendant bank to recover which this suit was commenced, Hitchcock and defendant again conferred concerning Kupper's outstanding checks drawn as aforesaid. At this conference it was found that Kupper had a balance to his credit in the defendant bank in the sum of $ 280, and that his outstanding checks aforesaid amounted to $ 1,800. Again Hitchcock, for Kupper, borrowed $ 500 from defendant, giving therefor his note for that sum. This, together with the said credit, created a fund of $ 780 to take care of said outstanding checks, leaving a balance of such checks in the sum of $ 1,020 unprovided for in so far as having money in the bank with which to honor them when presented for payment.

"13. At this last meeting of Hitchcock and the defendant it was agreed between them that the said note for $ 500, and the balance of the outstanding checks...