U.S. Fidelity & Guar. Co. v. People's Bank

• Decision Date: 10 June 1913
• Citation: 157 S.W. 414,127 Tenn. 720
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. PEOPLE'S BANK.
• Court: Tennessee Supreme Court

157 S.W. 414

127 Tenn. 720

UNITED STATES FIDELITY & GUARANTY CO. v. PEOPLE'S BANK.

Supreme Court of Tennessee.

June 10, 1913

Certiorari to Court of Civil Appeals.

Suit by the United States Fidelity & Guaranty Company against the People's Bank. There was a judgment of the Court of Civil Appeals, affirming a decree for complainant, and defendant brings certiorari. Affirmed.

Williams and Buchanan, JJ., dissenting in part.

Biggs & Spragins, of Jackson, for complainant.

Lewis & Garrett, of Dresden, for defendant.

NEIL C.J.

H. L Turner presented to the defendant bank for deposit the following check:

"The Weakley County Bank.

"Dresden Tenn., April 5, 1910.

"Pay to the order of H. L. Turner $516.24, five hundred sixteen and 24/100 dollars, Turner Fryer and Gladys Fryer. Amt. in full in the cause. Ward et al. v. Fannie Turner et al.

"[Signed] C. H. Hilliard, Clerk."

Mr. Fonville, the assistant cashier, asked him to indorse it. Thereupon he wrote on the back of the check: "H. L. Turner, Guardian." It thus being brought to the attention of the assistant cashier that the check represented guardian funds, Turner being guardian for the two children mentioned in the face of the check, he was asked if he wished to have the check entered on a separate account, meaning an account as guardian. Turner said, "No," he wished it entered on his personal account, and that he would expend the money solely for the benefit of his wards, and would keep an accurate account on his private books; that it would be more convenient for him to have but the one account. With this explanation, and relying on the promise of Turner to properly expend the fund, the assistant cashier gave him credit for the check on his personal account. This account was at that time overdrawn to the amount of $30.40. Turner was then a man of high standing in Weakley county, but subsequently, after squandering all of the funds represented by this credit on his own personal account, he absconded, and the complainant, as surety on his bond, was compelled to pay the amount of the estate that came to his hands, which was a few dollars more than the fund represented by the check. After the money was credited in the manner stated, Turner drew sundry small checks on the account, the checks being signed by him personally, and by these checks the fund was exhausted. Fifteen of the checks were in sums less than $5. There was one check for $100 in favor of the Farmers' Bank, another for $50 in favor of the same bank, a check for $50 in favor of the City National Bank, a check for $130 in favor of Charles Brand, one for $70 in favor of W. W. Morse, one for $35 in favor of Walter Rawls, and others for various amounts to different parties. As the result of this method of expenditure the whole fund was wasted between April 5th and May 12th, leaving an overdraft of $62.38.

Upon payment of the sum found due, the complainant filed its bill to hold the bank liable for the amount of the check. The chancellor and the Court of Civil Appeals concurred in rendering a decree against the bank. Thereupon the case was brought to this court by the writ of certiorari, and has been argued at the bar.

The entry of the check to the personal credit of the guardian by the bank was a conversion of the fund by both. Upon the making of such entry the bank became a trustee of the fund, and became liable therefor, and could be saved from being compelled to account to the wards therefor only upon the guardian's subsequent true administration thereof and accounting therefor, Draper v. Joiner, 9 Humph. 612, 615, 49 Am. Dec. 719; Covington v. Anderson, 16 Lea, 310; Caulkins v. Gas Light Co., 85 Tenn. 683, 4 S.W. 287, 4 Am. St. Rep. 786; Clark v. State and Bank of Tennessee, 7 Cold. 306, 322; Brocchus v. Morgan, 3 Shan. 667; Sanders, Trustee, v. J. H. Forgasson, 3 Baxt. 255; Bank v. Looney, 99 Tenn. 293, 42 S.W. 149, 38 L. R. A. 837, 63 Am. St. Rep. 830; Duckett v. National Mechanics' Bank, 86 Md. 400, 38 A. 983, 39 L. R. A. 89, 63 Am. St. Rep. 513; Zane on Banks & Banking, § 136, pages 218, 219; Id., § 341, pages 602 and 603.

The fact that Turner promised the bank that he would faithfully administer the fund, and would keep a true account thereof on his own private books, cannot be held to excuse the original conversion that made the misuse of the funds by the guardian easy and expeditious through checks drawn and signed with his personal name. Under the facts stated the bank took the risk of the guardian's making a proper disposition of the fund and keeping a true account thereof. This could not lawfully be imposed on the shoulders of his wards. The reliance of the bank upon the guardian's promises, under such circumstances, was simply folly.

We do not wish to be understood as holding that a bank is in general liable for the acts of trustees who deposit money with them. If the money is deposited to the trustee's credit as such, and his checks are drawn on this fund in his character of trustee, or guardian, as the case may be, the bank need look no further. It is not responsible for his administration of the fund, unless it knows, or in some special transaction has good reason to believe, that he is misappropriating the fund. It would be out of all reason to impose such responsibility on banks. The special case we have before us, and to which we...