Thompson v. First Nat. Bank of Harrodsburg
| Decision Date | 12 June 1928 |
| Parties | Thompson v. First National Bank of Harrodsburg. |
| Court | United States State Supreme Court — District of Kentucky |
2. Bills and Notes. — In action on notes, evidence of negligence of plaintiff bank, holding title to property in another state as security for indebtedness in employment of attorney to sell property, held insufficient for jury.
3. Principal and Agent. — If C., employed to sell defendant's property to which bank held title as security for debts due from defendant, was agent of each to extent of respective interests and bank retained right to control and direct C.'s actions, defendant was not liable to bank for its loss occasioned by agent's defalcations and should not be required to pay lien debts existing at time of such defalcation.
4. Principal and Agent. — In action by bank on notes, question whether party selling defendant's property, to which bank held title as security, which party was alleged to have embezzled money, was acting as agent of both bank and defendant to extent of respective interests so as to require bank to bear its loss due to agent's defalcation held for jury.
5. Bills and Notes. — In action by bank on notes, evidence of whether bank holding title to defendant's property as security received payment of $16,000 on assignment of mortgage held insufficient for jury.
6. Bills and Notes. — In action on notes by bank which had held title to defendant's property as security, evidence of whether loss was caused by bank's action in extending time of payment for property after sale and in assigning mortgage to agent making sale, who was alleged to have embezzled money, held insufficient for jury.
Appeal from Mercer Circuit Court.
ROBERT S. ALCORN, THOMAS D. SLATTERY, GALVIN & TRACY and CHARLES CORN for appellant.
E.H. GAITHER and C.E. RANKIN for appellee.
Reversing.
The First National Bank of Harrodsburg instituted this action against Col. John B. Thompson asking recovery on seven promissory notes, aggregating $13,225. Defendant admitted the execution of the notes, but by way of counterclaim in an answer of several paragraphs pleaded that, for the purpose of securing his indebtedness to the bank then existing and to be incurred in the future, on the 12th day of December, 1917, at the instance of the bank, he caused the legal title to certain real estate located at 848 Manhattan avenue, Brooklyn, N.Y., to be conveyed to it in trust. This property was of the value of $38,000, but was incumbered by a mortgage for $16,000 which he later paid and caused to be assigned to the bank vesting a clear legal title in it. The bank accepted the trust and agreed that upon a sale of the property it would deduct his indebtedness due it and pay the balance of the proceeds to him. Thereafter the bank asserted title in and exercised full ownership and control over the property, including leasing, listing, and assessing in its own name, as well as the collection of rents, and finally made a sale and conveyance thereof; the further allegations being that by negligence and carelessness the bank, as trustee, lost $10,000 in rentals, for which he asked recovery. He also alleged that the property was of the value of $38,000, and so known to be by the bank; that the bank, as trustee, had made an apparent sale thereof to one Anton Berger for the sum of $30,225, whereas the real purchaser was Ignatius P.A. Byrne who paid the price of $38,000, but that the bank did not account to him for any of the sale price, and sought a recovery of this sum in addition to the alleged loss of rentals, making a total claim for $48,000, and asked an accounting and for the amount of his indebtedness to be deducted therefrom and he be awarded judgment for the balance. In its reply the bank denied the existence of a trust or any negligence or misconduct upon its part in either renting or selling, but alleged affirmatively that all the transactions mentioned were done at the instance and with the approval of the defendant, who received on the sale of the property the sum of $6,600, the full amount realized therefor. Other appropriate pleadings made up the issues. In a jury trial a verdict was returned in favor of plaintiff and judgment entered accordinlgy. Plaintiff appeals.
The major question is as to which of the parties is liable for the defalcation of Hal S. Corbett, a New York attorney, who sold the property and collected the purchase price under a power of attorney, though for a determination of all the issues it is necessary to set out the various transactions between them. These transactions covered a number of years, and the facts though developed in detail are involved and confusing. Col. John B. Thompson, now 81 years of age, was a prominent distiller at Harrodsburg, Ky., and at the passage of the Volstead Act had on hand a large quantity of Kentucky whisky. He was and is a man of unusual intelligence, of strong and vigorous personality, and possessed of a legal education. He was a patron and debtor of plaintiff bank and distantly connected with its former president, C.D Thompson, who died in January, 1919, and who was then succeeded by F.P. James. On the 3rd of October, 1917, Col. Thompson, by a writing duly executed, purchased the real estate mentioned in Brooklyn, N.Y., from P.A. Rowley, etc., at the price of $33,500. No cash was paid, but Col. Thompson assumed a mortgage debt of $16,000, then held by one Freudenberger, and executed a note to himself for $17,500, and indorsed this note to the "Hargate Corporation," and further agreed for that corporation to take charge of and assume full control over the property and use the income in liquidation of the debt. In conformity with this agreement, on December 12, 1917, a blank deed was executed to Col. Thompson with leave to later insert the name of vendee. The deed was then delivered to the Hargate Corporation as security for the $17,500 note, a practice which seems to be sanctioned by usage in that state. Shortly afterward this note and the deed as security were delivered to and held by the Bank of Long Island, at Jamaica, N.Y. Neither note was paid at maturity and suit was filed on the Freudenberger note and judgment entered for a sale of the property. That judgment was paid by Col. Thompson on January 4, 1919, with funds advanced by the plaintiff bank, but instead of releasing the mortgage of record it was assigned to the bank, a proceeding also authorized in that state. As to the other note, there were considerable negotiations between the Bank of Long Island on one hand, and Col. Thompson and the Harrodsburg Bank on the other. This resulted in a payment of the note on January 15, 1920. Apparently, payment was made out of Col. Thompson's funds, but the deed with the name of the vendee still in blank was delivered to the Harrodsburg Bank, which at some time not appearing, but prior to Mr. James becoming president, inserted its name as the vendee in the deed, and on the 8th of August, 1919, mailed it to an attorney in New York for recordation. The Bank of Long Island had collected and accounted to Col. Thompson for the rents on this property from the date of the deed to January 1, 1919, and from that date to September 1, 1919, it remitted such rents to the bank at Harrodsburg, and the latter deposited these sums to the credit of Col. Thompson on a checking account. In the fall of 1919 Thompson and Geo. A. Lee, of New York, entered into an arrangement for a sale of some of Col. Thompson's liquors, and it was suggested that Lee, who also did business as the "Hargate Corporation," should be authorized to lease the real estate. The bank acquiesced in this, and gave such authority in writing to the Hargate Corporation. James says that this was at Thompson's direction, but this is denied by Thompson. During the summer of 1921 Thompson and Lee disagreed, and some correspondence ensued between the bank and Lee in regard to the matter. Lee informed the bank that Thompson was indebted to the Hargate Corporation in the sum of $50,000, and that other corporations of that state were claiming that he was indebted to them in various amounts. Lee also intimated that the bank was not the bona fide owner of the Brooklyn property. The bank answered, saying that, "Its only interest in the property was for the security of its debt," although in all of the other correspondence it appears that the bank was claiming to be the owner of the property. At Col. Thompson's suggestion the bank employed an attorney by the name of Seigelman to collect past-due rents from Lee and to clear the title, and it also sent him the deed for recordation. Seigelman demanded the rents from Lee and was answered by an attorney for the Hargate Corporation, who claimed that Col. Thompson had been credited by more than the amount of his rents, on his indebtedness to that corporation. Seigelman collected and remitted some of the rents accruing after his employment, and this was credited to Col. Thompson's account. Seigelman also intimated that he was suspicious of the bank's title to the property, and at Col. Thompson's suggestion he was discharged as attorney.
Before proceeding to the more interesting developments which are to follow, it may be well at this point to elaborate some of the preceding transactions. It appears that aside from a short period from October 24, 1919, to February 13, 1920, Col. Thompson was indebted to the bank at all times in varying amounts. The bank loaned or advanced him the money to take up the Freudenberger note and in...
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