Opinion
No. 32527.
March 8, 1937.
1. BANKS AND BANKING.
Deposit is presumed general unless expressly made special and specific.
2. BANKS AND BANKING.
Where directors of bank executed their personal note in favor of depositor for amount of deposit and received from cashier a time certificate without any special notation to indicate a special deposit, and books of bank and minutes of board of directors showed no action by bank tending to establish a trust or special deposit, no trust fund or special deposit was established in favor of directors, so as to entitle them to preference on insolvency of bank.
APPEAL from chancery court of Calhoun county. HON. N.R. SLEDGE, Chancellor.
Rush H. Knox and Creekmore, Creekmore Capers, all of Jackson, and E.C. Sharp, of Booneville, for appellants.
The deposit was a special deposit and became a trust fund for the payment of the note in question. Our contention in this case is that the deposit that was made to the credit of G.C. and S. Mabry was made for a special deposit and a trust was created between the parties. That the bank never got title to the deposit and the relationship of debtor and creditor never arose between the bank and the Mabry brothers. It seems that the proof on this is not disputed. The witnesses testified fully about the transaction and no one contradicted their statements. The cashier of the bank, who was not a director, testified that he understood the matter and that the deposit was for the sole and only purpose of paying Mrs. Waller's note. That such instructions were given him by the Board of Directors.
Where a deposit was special, was made for a special purpose, or, was in any way segregated, so that title did not pass to the bank, it must of course be repaid in preference to general creditors.
7 C.J., sections 544, 548; Sawyers v. Conners, 114 Miss. 363, 74 So. 131; 6 C.J., page 632.
A special deposit exists when money or property is given to a bank for some specific or particular purpose, as a note for collection, money to pay a particular note, or property for some specific purpose.
2 Michie on Banks and Banking, page 1291; Carlson v. Kies, 75 Wn. 171, 47 L.R.A. (N.S.) 317; Armour Packing Co. v. First National Bank, 69 Miss. 700; Whitcomb v. Carpenter, 111 N.W. 825, 10 L.R.A. (N.S.) 928; 3 Michie on Banks and Banking, page 257, sec. 185, 186.
In the case of Andrew v. Security Savings Bank of Perry, 203 Iowa 546, 213 N.W. 245, the court held that where a fund is held in trust by the bank for a specific designated purpose the bank does not take title.
Home Trust Co. Case, 69 S.W.2d 312; Love v. Wilson, 172 Miss. 546, 159 So. 97; Love v. Dampeer, 159 Miss. 430, 132 So. 439, 73 A.L.R. 1376.
The books of the bank, which were introduced in evidence, show from the date of the transaction to the closing of the bank, the bank had cash and sight exchange on hand more than sufficient to discharge this trust. And the proof conclusively shows that Mrs. Waller had presented herself at the bank to withdraw her funds to the amount of the note, and would have done so but for the giving of the note in question. And had this sum been withdrawn the assets of the bank would have been reduced to that extent and the assets coming into the hands of the superintendent of banks, as liquidating agent, and the liquidating corporation, as his successors, would have been decreased in that amount. That by the action of the signers of this note the assets coming into the possession of the liquidating corporation were increased to the extent of the amount of the certificate of deposit. Therefore, the depositors will sustain no loss by applying the amount of the certificate of deposit to the payment of the note in question. They will receive as much, and possibly more, than they would have received had these funds been withdrawn at the time Mrs. Waller presented herself at the bank for that purpose.
The case of Morton v. Farmers Bank, 24 A.L.R. 1107, 189 N.W. 232, held that where a person makes a deposit in a bank for the specific purpose of meeting certain checks to be thereafter issued, the bank, on accepting the deposit, becomes bound by the conditions imposed and if the money so deposited is misapplied it can be recovered as a trust deposit. The annotation to this case lays down the general rule that money thus deposited for the purpose of meeting certain checks, must be applied to that purpose.
Sawyers v. Conner, 1918 L.R.A. 61; Bryan v. Coconut Grove Bank Trust Co., 132 So. 481; Myers v. Federal Reserve Bank of Atlanta, 134 So. 600.
It appears from a careful examination of the Mississippi authorities that the cases most nearly in point are Sawyers v. Conner, 114 Miss. 363, and Miss. Central Railroad Co. v. Conner, 114 Miss. 631.
Stone Stone, of Coffeeville, for appellee.
We say that the repeated statement in the claim against the liquidating corporation that the money was received as a trust fund and was the subject of a secret trust and one in favor of the directors of the bank, all constitute separately and jointly a medley of legal impossibilities. We did not take up much time in our oral argument in discussing this because it seems to us elementary law and absolutely a fundamental proposition that no set of trustees or directors can establish any such trust as this in order to save themselves; we need not go further than section 3795.
The whole spirit of our banking law was in line with all the decisions in the country that the directors or trustees of any institution can never make the institution a buffer against the effect of private business ventures of said trustees or directors.
Love v. Wilson, 160 So. 565, 172 Miss. 546; Dampeer case, 159 Miss. 430, 132 So. 439, 73 A.L.R. 1376.
Counsel submitted several authorities and I have one word for the ones outside of Mississippi and that is when we have a matter decided in Mississippi, and thoroughly decided, an unequivocal adjudication of the same inside of our state, I refuse to be invited on an excursion into foreign states to see what they may have thought about this proposition. The only case even winking at anything favorable to the signers of the note, even on a casual glance, is the case of Sawyers v. Conner, 114 Miss. 363, 75 So. 131, L.R.A. 1918A, 61, Ann. Cas. 1918B, 388, and the supposed application of that case to the case at bar would be apparent only to the casual glance, but on full examination it would show what was said by Judge Anderson in the case of Love v. Little, 167 Miss. 105, 148 So. 646, and that is: "In the Sawyers case the depositor refused to permit the proceeds of a check to be deposited either to her checking account or her savings account, but informed the cashier of the bank that the deposit was for the purpose of paying a contractor for building a house; whereupon, the cashier gave her a special receipt bearing the words S.P. Dept. The court held that the deposit was charged with a trust in favor of the contractor and that the bank did not get title to the proceeds of the deposit."
This little paragraph occurs on page 110 of 167 Miss. in the case of Love v. Little, and shows very plainly that far from being in line with the case at bar which is a purported secret trust, that in the Sawyers v. Conner case there was a special receipt bearing the words "S.P. Dept.", which were interpreted in the opinion as meaning Special Deposit. This case takes itself out of the class into which properly falls the case at bar, and is so plainly shown to do so by the paragraph just quoted, and the decision in Love v. Little shows very plainly the line of demarcation between a general and a special deposit.
A deposit is presumed to be general unless expressly made special or specific. Where the bank had a right to mingle the funds deposited with its general assets, it is a general deposit and not a special one. A special deposit does not enter into the general funds of the bank "and form a part of its disposable capital;" it is kept separate and is to be specifically returned. This is true, even though the money deposited may be trust funds put with the bank on condition that it would pay a certain sum to the cestui during life, in the absence of evidence to show that it was the bank's duty by express agreement or clearly implied to keep the funds and their investment separate.
1 Morse on Banks Banking (6 Ed.), sections 186 and 205; Love v. Little, 167 Miss. 105.
The only other case that we desire to mention is Mississippi Central Railroad Co. v. Conner, 114 Miss. 63, 75 So. 57, and it is directly in line with the latest decision above quoted from which latter is the more recent decision, and still we can not fail to call attention to the case which so thoroughly excludes the theory on which the case at bar was filed.
The distinctive feature, the sine qua non of a special deposit, is that the identical money deposited is to be kept apart from the general funds of the bank to be returned to the depositor or paid to some other person designated when the money is deposited.
Sawyers v. Conner, 114 Miss. 363, 75 So. 131; Love v. Little, 167 Miss. 105, 148 So. 656.
We repeat that the case of Miss. Central Railroad Co. v. Conner, stands without the slightest modification or limitations as the law of the State of Mississippi, and stands absolutely in the way of any sort of decree in favor of the signers of the note in this cause against the Derma Bank Liquidating Corporation.
To sum up this matter, if there was any agreement to protect the signers of the note it was made by the signers of the note, as officers of the bank, with the bank, for the protection of themselves as the said signers. This is a legal impossibility and a complete fraud and attempted perversion of the banking laws of the State of Mississippi. This was demonstrated by the cross-examination of each one of the signers of the note, which has been shown plainly in this record and in this brief.
We earnestly submit that under the law and the facts we are entitled to an affirmance of the decree of the chancellor.
Argued orally by Wade H. Creekmore and H.H. Creekmore, for appellant, and by W.I. Stone, for appellee.
Prior to February 1, 1930, the Bank of Derma had been in existence and had failed. Mrs. C.S. Waller, as guardian of her minor children, had approximately $6,000 on deposit in that bank. A few days prior to the transaction here involved, the Bank of Derma was reorganized and chartered as the Bank of Derma. On February 1, 1930, Mrs. Waller desired to withdraw her money from the new bank. She and her attorney met and had a conference with C.G. Mabry and five others, composing the entire board of directors of the new bank. As a result of this conference the six directors executed their promissory note in favor of Mrs. Waller, as guardian, for the amount she had on deposit in the bank; the note was due one year after date and bore 6 per cent. interest. As a result of this conference and the execution of this note, Mrs. Waller, according to the evidence of one of the directors, "swapped" her deposit in the bank for the individual note of the six directors. In the presence of Mrs. Waller these six directors agreed among themselves that they would have the bank issue to C.G. Mabry and his brother a time certificate of deposit for the general deposit of Mrs. Waller, bearing 4 per cent. interest and due one year after date. Mabry and his brother were to hold this time certificate of deposit for all the directors signing the note, and the deposit in the bank was to be applied only to the payment of the note when it became due. Mrs. Waller and her attorney heard this agreement made between the directors but did not participate therein, nor was the agreement for her benefit.
The directors repeated the agreement to Stewart, the cashier of the bank, who issued to C.G. Mabry and his brother a time certificate of deposit for the amount, without any special notation, or anything, thereon to indicate that the general deposit had been changed into a special deposit or trust fund. No entry was ever made upon the books of the bank indicating that there was any agreement that this fund should be a special deposit or trust fund.
Subsequently, in December, 1930, the new bank closed its doors and went into the hands of Love, Superintendent of Banks, who continued to administer the affairs of the bank until May 19, 1934, when, in pursuance of chapter 146, Laws 1934, a liquidating corporation was formed by decree of the chancery court. The stockholders of the corporation took over the affairs, control, and management of the assets and liabilities of the defunct bank. When the note became due, which was after the new bank had closed its doors, the six directors renewed it, signed as before, and due one year from that date. Neither Mrs. Waller nor the six directors ever presented to the chancery court, prior to the time the affairs of the bank were taken over by the liquidating corporation, any claim for preference.
Some time after the liquidating corporation had taken over the affairs of the defunct bank, Mrs. Waller brought an action at law against the six directors for the recovery of the amount of the note, with interest. The directors appeared in the circuit court, and upon their motion the cause was transferred to the chancery court, where Mrs. Waller reframed her cause of action, and stated in her bill substantially the above facts, making J.S. Love, Superintendent of Banks, a party thereto. The directors of the bank appeared and filed their answer, admitting their liability on the note and setting up as against the liquidating corporation their claim to a preference for the amount of the deposit of Mrs. Waller, transferred to Mabry and brother as a special deposit or a trust fund for the payment of the note, and prayed for a decree against the liquidating corporation for the amount of the deposit as a trust fund.
The liquidating corporation denied any liability because no trust had ever been created; denied the authority of the directors to so create a trust fund; denied that the liquidating corporation was a proper party to the cross-bill of the directors; and denied that they could maintain any action against it for the further reason that the claim had never been established in the chancery court at the time and in the manner provided for the administration of liquidating banks. There was evidence that at the time the bank closed it had on hand in cash and to its credit with other banks more than the amount of the deposit or note.
The court below entered a decree against the directors for the principal amount of the note and interest, and dismissed their cross-bill against the liquidating corporation. Mabry and others, as individuals, prosecute this appeal.
It is the contention of the appellant that the facts which we have detailed established that the deposit was a special deposit or trust fund for the payment of their note to Mrs. Waller, as guardian, and that the court below erred in not so holding. Let us emphasize the fact that the time certificate of deposit issued to C.G. Mabry and his brother contained no information that it was anything more than a general deposit; there was no indication of any special deposit or of any kind of trust, and the books of the bank and minutes of the board of directors showed no action by the bank tending to establish a trust or special deposit of the funds here involved. The appellants rely strongly upon the case of Sawyers v. Conner, 114 Miss. 363, 75 So. 131, L.R.A. 1918A, 61, Ann. Cas. 1918B, 388, while the appellee relies upon the case of Mississippi Cent. R.R. Co. v. Conner, 114 Miss. 63, 75 So. 57.
In the case of Love v. Little, 167 Miss. 105, 148 So. 646, this court held that a deposit is presumed to be general unless expressly made special and specific. From the moment the agreement was made by the directors inter sese and with Stewart, the cashier, no step was taken by them as directors of the bank or by the cashier tending to withdraw this general deposit of Mrs. Waller from the general funds of the bank, the status the deposit had occupied prior to the execution of this note. Nothing was done by these directors from the moment they received the time certificate of deposit, which was in form and in fact a general deposit, unless that status was changed by the particular agreement which the directors had among themselves. The chief executive officer of the bank, the president thereof, took no part in these proceedings. The directors were the managing officers of the bank; they made no entry upon their minutes withdrawing and segregating this fund from the general deposits of the bank.
From the date of the execution of the note by these six directors and the issuance of the time certificate of deposit on February 1, 1930, to the time the bank closed, they, as active directors of the bank, allowed this deposit to remain on the books as a general deposit in the same category and with the same standing, so far as the books, minutes, and records of the bank disclosed, as any other general deposit. They were presumably familiar with the affairs and condition of the bank; they had controlling access to the records of the bank; they accepted a certificate of deposit which bore no evidence of the creation of a special deposit or trust fund. By their action they never established any trust in this fund. They either knew or should have known the manner in which this particular deposit was entered on the books of the bank; they acquiesced directly as directors in the manner in which the books under their control were kept. They were charged with notice that they had not accomplished on the books of the bank the segregation of this deposit as a trust fund or special deposit. For nine or ten months they allowed it to remain unchanged. The facts of this case easily differentiate it from the facts disclosed in Sawyers v. Conner, supra. There the special depositor had no knowledge that the bank had not complied with its agreement in making the special deposit; she had no access to the books of the bank, nor control thereof, and the oral evidence establishing the trust in that case was supported by the entry on the deposit slip which the officer of the bank gave her at the time the deposit was made. In the case at bar nothing was entered on the time certificate to indicate a trust fund, and it was not carried on the books of the bank as a trust fund.
We are of opinion that the court below correctly held that no trust fund or special deposit was established in favor of these directors. The fact that they honestly believed they were acting in the interest of the bank cannot avail here in their behalf. They represented themselves individually and the bank at the same time in this transaction and never accomplished the segregation of this fund in any manner. We do not mean to hold that an officer of the bank could not under any circumstances set up a trust or special deposit in a particular fund, but what we do hold is that on these facts these directors did not accomplish the result they desired.
The shift, change, or "swap" did not change the relation of debtor and creditor so far as the bank was concerned. It simply owed the same debt to different parties.
Affirmed.