Porterfield v. Farmers Exchange Bank

Full title: KATHERINE PORTERFIELD, Guardian and Curator of Persons and Estate of…

Court: Supreme Court of Missouri, Division Two

Date published: Apr 14, 1931

37 S.W.2d 936 (Mo. 1931)

37 S.W.2d 936

Opinion

April 14, 1931.

1. INSOLVENT BANK: Claims: Heard Together: Stipulation: Appeal: Separable Judgment. An agreement between the attorneys for the Commissioner of Finance in charge of the insolvent bank and the attorneys for the various claimants, that the court hear all disputes as to the allowance of claims in one proceeding, and that all the evidence taken at the hearing shall be considered as applicable, so far as competent, relevant and material, to each claim, is to be liberally construed, and the decree is not, because of such agreement, to be considered on appeal as one which must be reviewed as to all claimants, but only as it affects the claims for allowance of those who appeal; and where appellant sues as a curator of the estate of her minor children and as a preferred claimant, and her claim is rejected, her appeal will not be treated as asking for a modification of the decree as respects all the claims, but only as an appeal from a separate judgment against her, to be affirmed, reversed or modified, as though it were a separate suit.

2. ____: Guardian: Ratification. The curator of the estate of her minor children, who places it in a bank at the request of the cashier and upon his promise to invest it in her name as curator in first mortgages upon real estate, does not ratify his act in investing it in worthless unsecured notes.

3. ____: ____: ____: Paying Interest. Payment by the bank to the guardian of interest on the minor's estate, placed in the bank in response to the voluntary promise of its cashier that he would invest it in first real estate mortgages, in amounts far less than should have been collected, was not a ratification of the cashier's wrongful act in investing the money in worthless unsecured notes.

4. ____: ____: ____: Unlawful Act. The wrongful act of a third person in dealing with the property of a ward cannot be ratified by the guardian and curator of the ward; and the action of a bank, with knowledge that the statute and the probate court required the moneys of the minors in the hands of the appointed guardian and curator to be loaned on prime real estate security, in taking the money from her under a promise to so invest it, and instead of doing so, investing it in worthless unsecured notes, was not only a violation of the agreement, but contrary to the statute (Sec. 418, R.S. 1919), and was an act which the guardian and curator could not lawfully ratify.

5. ____: ____: Ratification and Waiver. A short time after the bank had failed and the commissioner had taken charge of its assets, plaintiff, as guardian and curator, called for the money of her minor wards, amounting to $20,000, which she had placed in the hands of the cashier under an express promise that he would loan it on prime real estate security, which she had been led by the cashier's false statements had been done. The commissioner delivered to her an envelope containing notes aggregating $20,000 or more, with the remark, "They are not worth a dime." This was her first information that the funds had not been invested in real estate security. She receipted for the notes, and thereafter called upon the makers to pay them, took renewals for a number of them, and obtained judgments on others and caused execution to issue. At the trial of her claim in the sum of $20,000, as a preferred claimant, she offered to return to the commissioner all of these notes she still held and whatever she had received upon any of them. Held, that, by none of these acts did she waive any right the wards may have had against the commissioner, nor did she ratify the unauthorized acts of the bank. She had no power to waive any right the wards may have had against either, or to do any act detrimental to her wards.

6. ____: Preferred Claimant. A guardian and curator is entitled to a preferred claim against the assets of a defunct bank for the amount of her ward's money placed in the bank under an agreement that it would invest it in loans on prime real estate security, and did not, where (a) the relation created was that of trustee and cestui que trust, and not that of debtor and creditor, and (b) the trust fund swelled the assets of the bank and as such came into the possession of the Finance Commissioner as liquidation agent. And in this case both conditions are established by the evidence.

7. ____: ____: Trust Property. The preferred claimant, in order to impress his claim upon the assets of the defunct bank, must show that his money was held in trust by the bank; that in reality it does not belong to the bank, and in justice should be returned to him, and therefore no injustice will be done to the general creditors by returning it to him, because it is not assets that can be lawfully used to pay general creditors.

8. ____: ____: ____: Identical Property. The preferred claimant, in order to impress a trust on the assets of the defunct bank in his favor, is not required to point out the identical money placed in the bank under a trust arrangement. If he can show that his money has been commingled with the properties of the bank and that it has enhanced the assets of the bank, and that the Finance Commissioner as liquidation agent came into possession of the bank properties so enhanced, by reason of the transaction that brought his money into the hands of the bank, he is entitled to a preference over general creditors.

9. ____: Deposit: Trust Property. Where a bank receives a check, not as a general deposit, but for the special purpose of investing the fund in real estate for the payee, its duty is to collect the check and invest the fund as agreed; and when it gives the payee credit for the amount as a general deposit, indorses the check and sends it to its correspondent to be credited to it, and then issues debit slips against the general deposit in its own bank and charges the payee's account therewith by placing worthless notes in an envelope for the payee until the entire fund is exhausted, it betters its own financial condition by the amount of the fund, and if it had not been for the conversion the worthless notes when the bank failed would have been received by the Finance Commissioner, and would have equaled the amount of the fund. The check therefore, deposited under the agreement, was a trust fund, of which the bank became trustee, and the fund, thus converted, went to swell the assets of the bank, and the payee is entitled to a preference for the full amount, to be paid by the commissioner out of the bank assets in his hands.

Appeal from Daviess Circuit Court. — Hon. Ira D. Beals, Judge.

REVERSED AND REMANDED ( with directions).

Nat G. Cruzen and Dudley Brandom for appellant.

(1) If money is left with a bank to be loaned, the bank is an agent and not debtor. The bank is liable under such circumstances for losses due to negligence. A bank receiving a special deposit to lend on real estate security is guilty of a fraud if it lends the money to an insolvent or transfers to its principal notes owned by it which are not good. Landa v. Bank, 118 Mo. App. 356; Bank v. Fleming (Ky.), 44 S.W. 961; Miles v. Bank, 187 Mo. App. 249; Millinery Co. v. Trust Co., 251 Mo. 553; Bank v. Lyons, 220 Mo. 538; Evans v. Peoples Bank, 6 S.W.2d 656; Compton v. Trust Co., 279 S.W. 746; Greenfield v. Savings Bank, 5 S.W.2d 708; Bircher v. Sheet Metal Co., 77 Mo. App. 515; 7 C.J. 719, sec. 462. (2) The twenty thousand dollar check of Mrs. Porterfield's having been left with the bank under an express agreement that it was to be invested in real estate loans of the character required by the law to be taken by guardians and curators, constituted a trust fund and when the bank took it in payment for twenty thousand dollars of worthless notes of its own it took the trust fund without consideration and to that extent the assets of the bank were increased. Bartlett v. McCallister (Mo.), 289 S.W. 819; Nichols v. Bank of Syracuse, 220 Mo. App. 1026. (3) Where a trustee commingles trust money with his own so that it cannot be distinguished, equity will follow the money and take out the amount due the cestui que trust. Harrison v. Smith, 83 Mo. 210, 53 Am. Rep. 571; Midland Nat. Bank v. Brightwell, 148 Mo. 358, 71 Am. St. 608; Bank of Poplar Bluff v. Millspaugh (Mo. App.), 275 S.W. 582; Marshall v. Bank of Steele, 215 Mo. App. 365, 253 S.W. 15; Special Road Dist. v. Cantley, 8 S.W.2d 946. When all of the money arising from general deposits and from the receipt of a trust fund goes into one general mass and is used in the general business of the bank, then the whole assets of the bank are subject to a lien in favor of the cestui que trust. Nichols v. Bank of Syracuse, 220 Mo. App. 1026. (4) In order to have been a dissipation of the trust fund, it must be shown either that that fund can be traced specifically and that it has been dissipated, without augmenting the funds of the trustee, or that the general fund with which the trust fund was wrongfully mingled has all been dissipated and the entire estate of the insolvent trustee has arisen from other sources. Tufts v. Latshaw, 172 Mo. 373; Stoller v. Coats, 88 Mo. 514; Bircher v. Walther, 163 Mo. 461; Real Estate Co. v. Robinson, 199 Mo. App. 515; Schulz v. Bank of Harrisonville, 246 S.W. 614; Tierman v. Security B. L. Assn., 152 Mo. 135; Horigan Realty Co. v. Flynn, 213 Mo. App. 591; Nichols v. Bank of Syracuse, 220 Mo. App. 1026. Where the fund is made up in part of the trustee's own funds and in part of the fund held in trust, the trustee's withdrawal from the fund is presumed to have been made from his own money, leaving in the fund not dissipated the money held in trust. Horigan Realty Co. v. National Bank, 273 S.W. 772; Lowell v. Brown, 280 F. 193; Nichols v. Bank of Syracuse, 220 Mo. App. 1026. (5) The plaintiff's money was a trust fund, was mingled with the general assets of the bank, increased the mass of the assets of the bank, it was held subject to the duty to invest it according to directions at the time it was placed in the hands of the bank. The commissioner in charge of the bank received sufficient assets to many times cover this trust fund and the plaintiff is entitled to a preferential allowance. Federal Reserve Bank v. Quigley (Mo. App.), 284 S.W. 164; Nichols v. Bank of Syracuse, 220 Mo. App. 1019; Johnson v. Farmers Bank, 11 S.W.2d 1092.

Laurance M. Hyde, L.B. Gillihan and J.W. Alexander for respondents.

(1) Decree appealed from is proceeding in equity for equitable separation of property. (a) Decree determines all claims, general or preferred, on evidence on all claims as one proceeding by agreement of counsel, and is a proceeding in equity for equitable separation of property. Bircher v. Walther, 163 Mo. 461. (b) Appeal is to modify portion of decree relating to appellant's claim. (2) Preference is based on right of property and not on compensation for its loss. 15 L.R.A. (N.S.), note 1100; Spokane Co. v. Natl. Bank, 68 F. 979. (3) Equity will follow fund as far as it can be identified only. Mayer v. Bank, 86 Mo. App. 422; Bank v. Brightwell, 149 Mo. 358; Harrison v. Smith, 83 Mo. 210; Phillips v. Overfield, 100 Mo. 466. (4) Where trust fund is dissipated or spent to pay obligations of trustee and is no longer in existence preference will not be granted. Nonstock Silk Co. v. Flanders (Wis.), 58 N.W. 383; State v. Bank of Commerce (Neb.), 75 N.W. 28; Jones v. Chesebrough (Ia.), 75 N.W. 97; Bradley v. Chesebrough (Ia.), 82 N.W. 472. (5) Bank presumed to have used own funds and not trust funds in making loans. State v. Foster (Wyo.), 38 P. 926, 29 L.R.A. 226; Leach v. Sanborn State Bank (Ia.), 212 644 N.W. 694. (6) Where mingled account is drawn to balance less than trust fund, the trust fund except as to balance is presumed dissipated and sums subsequently added are not attributed to trust fund. Beard v. Independent Dist., 88 F. 375; Boone Co. Natl. Bank v. Latimer, 67 F. 27; Crawford Co. v. Strawn, 157 F. 49, 15 L.R.A. (N.S.) 1100. (7) Missouri cases also hold that trust cannot be enforced where trustee has spent the trust fund. Horigan Realty Co. v. Flynn, 213 Mo. App. 591; Bircher v. Walther, 163 Mo. 461; Paul v. Draper, 158 Mo. 197; Pearson v. Haydel. 90 Mo. App. 253; Phillips v. Overfield, 100 Mo. 466. (8) Missouri rule is, also, that where it is shown that trust funds have gone into an estate claimant will be aided by the presumption that in the absence of any evidence to contrary, there being estate remaining greater than the fund, the trust funds are in commingled estate. Horigan Realty Co. v. Flynn, 213 Mo. App. 591; Harrison v. Smith, 83 Mo. 210; Evangelical Synod v. Schoeneich, 143 Mo. 652; Stoller v. Coats, 88 Mo. 514. See also Huntsville Trust Co. v. Noel, 12 S.W.2d 251, and State ex rel. v. Page Bank, 14 S.W.2d 597. (9) Evidence is conclusive that funds appellant deposited did not reach commissioner. (a) Appellant's check was deposited in the Fidelity National Bank Trust Company. This account was used to pay the bank's debts. None of it came into the hands of the commissioner. This was a complete dissipation thereof. Gaty v. French, 3 S.W.2d 1043; In re Linn County Bank, 1 S.W.2d 206; Crawford Co. Comm. v. Strawn, 157 F. 49, 15 L.R.A. (N.S.) 1100. (b) Entire assets of bank which came into the commissioner's hands shown to have arisen from other sources than appellant's deposit. (10) Appellant affirmed transaction as a relation of debtor and creditor. (a) Guardian's deposit creates merely relation of debtor and creditor. Paul v. Draper, 158 Mo. 197. (b) Making claim for general deposit ratified original transactions as a general deposit. Stoller v. Coats, 88 Mo. 514. (c) To rescind transaction appellant was required to return what she received and having failed to do so has not made a case. 13 C.J. 620, secs. 679, 680, 681; Girdner v. Alley, 256 S.W. 832; Green v. Life Ins. Co., 159 Mo. App. 277; Robinson v. Siple, 129 Mo. 208.

WESTHUES, C.

In this proceeding Katherine Porterfield, guardian and curator of her minor children, Dorothy and Byron, seeks to impress upon the funds and assets of the defunct bank mentioned in the title a preferred claim in the sum of $20,000. The trial court disallowed the claim in toto, either as preferred or general. Plaintiff appealed.

In order to more fully understand the actions of the parties connected with this case, a short history of the matter must be related. Plaintiff's husband, a physician, practicing medicine at Jamesport, Missouri, and Dr. R.V. Thompson, cashier of the defunct bank, had been on friendly terms for many years, consulting each other frequently with reference to their medical work. Dr. Thompson, according to the evidence, at one time lived at Jamesport and was an officer of the Commercial Bank of Jamesport. Dr. Porterfield also consulted Dr. Thompson on business matters and did his banking business with the Commercial Bank, of which Dr. Thompson was an officer.

Dr. Porterfield was struck and killed by lightning in April, 1921, leaving the plaintiff, his wife, and two small children, Dorothy and Byron, to mourn his unfortunate and untimely death. Dr. Porterfield carried a $10,000 life insurance policy with a double indemnity clause. The children were named beneficiaries in the policy. The plaintiff, after her husband's death, went to Dr. Thompson, who was then cashier of the Farmers Exchange Bank of Gallatin (the bank in liquidation in this case), for the purpose of seeking advice with reference to the estate left by her husband. Dr. Thompson accompanied her to the probate court office and aided plaintiff in having herself appointed guardian and curator for the minor children, and administratrix of her husband's estate. Dr. Thompson signed the bond required by the probate court. The probate judge at that time informed plaintiff and Dr. Thompson that the law required money in the hands of a curator and guardian to be invested in government bonds or first-mortgage real estate securities. Plaintiff then collected the $20,000 from the insurance company and deposited it in the Commercial Bank at Jamesport to her credit as guardian and curator. Sometime later plaintiff went to Gallatin and, while there, met Dr. Thompson on the street. After a short conversation, Dr. Thompson inquired of plaintiff if she had invested that $20,000. Plaintiff informed him that she had not had any experience in real estate loans and did not know just what to do. Dr. Thompson then informed plaintiff that the Farmers Exchange Bank would invest the money for her in good first mortgages; that he was near the court house and could attend to the details without much trouble. Then, by appointment, plaintiff and Thompson met at the probate judge's office in the afternoon of the same day and informed the judge that Dr. Thompson, through the bank, was going to take care of investing the money, collect the interest and do what was necessary to invest the funds. The probate judge again informed them that the funds must be invested in first mortgages on real estate or government bonds. Leaving the probate judge's office, plaintiff and Thompson went to the latter's office at the Farmers Exchange Bank, where plaintiff gave Dr. Thompson, the trusted friend of the family for many years, the following check:

"Jamesport, Missouri, June 10, 1921

Commercial Bank

"Pay R.V. Thompson, Cas. or Bearer $20,000.00 "Twenty Thousand Dollars. "R.E. Loans Katheryn Porterfield, Curator."

The words "R.E. Loans" were written on the check by Dr. Thompson. About the time the check was given, the probate judge came into the bank. According to plaintiff and the probate judge, Thompson made the statement that plaintiff was leaving the money with the bank to be invested, through the bank, in real estate loans, and that that would be done. This was in June, 1921. The bank closed its doors on March 4, 1926. Plaintiff testified that the first time she obtained any knowledge of the fact that no part of the $20,000 had ever been invested in real estate loans was after the bank closed its doors. The annual settlements made by plaintiff as curator and guardian, according to the testimony of plaintiff and the probate judge, are in the handwriting of Dr. Thompson. Plaintiff also testified that Dr. Thompson made out the settlements and accompanied her to the probate office. When the first settlement was made Thompson informed the probate judge that the loans listed in the settlement were secured by first mortgages on real estate. During the summer of 1925, the probate judge inquired of plaintiff what security she had on certain notes. Plaintiff informed the judge that she did not know, but would ask Dr. Thompson. Plaintiff made a notation of these notes and took the list to Dr. Thompson, who informed her that all of the notes mentioned were secured by mortgages on real estate, and enumerated the mortgages the bank held on each individual note.

Witness Mrs. Flora B. Mettle, wife of the probate judge, acted as clerk in the probate office and corroborated the plaintiff as to what transpired at the probate court between plaintiff and Dr. Thompson and the probate judge; also that Dr. Thompson made the first settlement.

Probate Judge Mettle also corroborated plaintiff in her testimony as to the transactions between plaintiff and Dr. Thompson, and as to the statements made by Dr. Thompson with reference to the investment of the money. Witness further testified that Dr. Thompson, on several occasions, informed him that the money was invested in first-mortgage security. The blanks upon which the reports of plaintiff, as guardian and curator, were made, contained a space to list the real estate held by the curator as security for the money invested, as required by Section 418, Revised Statutes 1929. The reports that were made did not contain any description of value of real estate, that part of the reports being left blank. The plaintiff signed and verified the reports. The witness, Judge Mettle, was in office only when the first report was filed, his term having expired that year. Judge Mettle was cross-examined at length on this subject and asked why he did not require the real estate to be listed. Part of the cross-examination is as follows:

"Q. This is the only report that was filed by Mrs. Porterfield as curator showing money loaned while you were probate judge? A. Yes, sir. My time of office was out that year.

"Q. And did Mrs. Porterfield tell you that these loans were real estate security? A. She didn't know. She was with Dr. Thompson, and Dr. Thompson represented them to be real estate loans.

"Q. You don't know whether they were or not? A. I didn't have no way of checking up on them without going to the Recorder's office, and never did that. . . .

"Q. But you are confident that when you looked over this report and saw that the security wasn't listed, that you told Mrs. Porterfield that it ought to be, and told her that you would require her to have it listed? A. Well, now, Dr. Thompson was spokesman. Mrs. Porterfield didn't — she was there with him, and he was doing the work for her, and she didn't have much to say about it. She didn't know those things, I reckon."

Returning now to 1921, let us see what disposition was made of the check of $20,000 and the proceeds thereof. The evidence is undisputed that the Farmers Exchange Bank gave plaintiff credit for $20,000 on June 10, 1921. The check, however, was deposited by the Farmers Exchange Bank, after it had endorsed the same, in the Fidelity National Bank Trust Company of Kansas City, Missouri, a correspondent bank, in which bank the Farmers Exchange carried a very active account. Drafts were issued against it and checked out in the ordinary course of business. This account in the Fidelity National was increased to $42,005.37 by the deposit of plaintiff's check of $20,000. The account fluctuated from time to time, as additional money was deposited or drafts drawn against it, up to the time the Farmers Exchange closed its doors, March 4, 1926. On four occasions during that time the account in the Fidelity National was checked out entirely.

Shortly after the bank closed, the plaintiff went to the Deputy Finance Commissioner and made inquiry with reference to her property. She was given a number of notes of various amounts, totaling about $20,000, not one of which was secured by real estate.

The manner in which the account of plaintiff, as curator, was manipulated by the bank is shown by the following, taken from the records of the bank:

"Account of Katherine Porterfield, Curator with Farmers Exchange Bank of Gallatin, Mo.

1921 Checks Deposits Jun 10 $20,000.00

June 10 2,000.00 4,000.00

Jun 13 2,000.00 Jun 14 2,000.00 Jun 18 4,500.00 Jun 23 1,000.00 Jun 28 1,000.00 Jul 7 2,000.00 Jul 12 500.00 Jul 14 1,000.00"

The checks were in reality debit slips issued by the bank and charged to the account of plaintiff, of which the following are samples:

"6-10-21 Debit Slip Bert M. Barnett note $2,000.00 "6-10-21 Debit Slip Pettijohn F. Co. note 4,000.00"

It will be noticed that the debit slips issued on or before July 14, 1921, amounted to $20,000. We infer from the record that the bank continued to issue debit slips at various times up to and including July 7, 1925. This seems to have been done by taking notes from plaintiff's envelope and crediting her account with the amount of the notes and then taking some other note or notes from the bank's assets and charging plaintiff's account with the amount of that note or notes and issuing a debit slip for a like amount. The interest supposed to have been collected on these notes should have been placed to plaintiff's credit. It is admitted that the notes delivered to plaintiff after the bank closed were absolutely worthless, by reason of the hopeless insolvency of the makers. Plaintiff made an effort, but failed, to collect one cent on these notes. A number of the makers renewed the notes to plaintiff as curator. Plaintiff also obtained a judgment on several of the notes, and had execution issued, without results. At the trial plaintiff offered to return all of the notes and the renewals and whatever she received from the bank to the bank commissioner.

Prior to the failure of the Farmers Exchange Bank plaintiff issued a number of checks on the bank against a fund supposed to represent interest collected on the real estate loans. The first check was drawn April 17, 1924. These checks, eight in number, were in payment of plaintiff's allowance as guardian and curator and probate court fees. The total amount of these checks was $2,009.76. When the bank closed, plaintiff's account, as curator, showed a balance of $1,481.46. This amount was allowed as a general claim. It is supposed to represent interest collected.

In order to determine the issues in this case, it is necessary to relate and state the condition of the defunct Farmers Exchange Bank. We will attempt to condense this statement as much as the circumstances permit. The condition of the bank is reflected in the daily statements offered in evidence, of which the following are samples: "3-2-20 6-10-21 5-12-23

"Due from other banks $150,876.58 103,151.03 73,651.38 County Warrants 61.25 Cash in Vaults 27,803.72 15,998.51 13,180.55 Banking House 12,000.00 12,000.00 12,000.00 Furniture Fixtures 3,000.00 3,000.00 4,975.00 Bonds 9,950.00 11,150.00 21,341.71 Overdrafts 44,320.07 8,179.24 8,234.17 Bills Receivable 834,790.11 700,091.64 771,554.50 Other Real Estate 8,000.00 1,400.00 28,750.00 Bonds Borrowed 30,300.00 20,000.00 Stocks 2,000.00 Other Resources 43,107.65 War Savings Stamps 77.99 85.40 Cont. Guaranty Corp 3,560.48 _____________ __________ __________ $1,094,378.95 885,270.42 998,941.61

"Capital 50,000.00 50,000.00 50,000.00 Surplus 60,000.00 60,000.00 60,000.00 Undivided Profits 26,924.04 23,862.32 19,498.74 Time Deposits 60,869.90 112,633.68 77,447.28 Demand Deposits 824,422.19 457,724.87 573,225.12 Savings Deposits 16,534.79 Other Bank Deposits 47,482.82 40,493.87 58,385.68 Bills Payable 21,900.00 103,034.72 62,000.00 Rediscounts Bonds Borrowed 30,300.00 20,000.00 Due War Finance Corp. 60,000.00 Cashiers Checks 2,780.00 7,220.96 1,850.00 Bonds sold with agreement to repurchase _____________ __________ __________ $1,094,378.95 885,270.42 998,941.61

"1-10-24 1-28-26 2-25-26

"Due from other Banks $ 134,717.71 73,621.52 20,478.41 County Warrants 32,834.59 32,834.59 Cash in Vaults 17,112.27 14,790.22 17,823.22 Banking House 12,000.00 12,000.00 12,000.00 Furniture Fixtures 4,975.00 4,975.00 4,975.00 Bonds 11,197.69 584.96 1,151.26 Overdrafts 9,116.40 4,303.93 9,554.99 Bills Receivable 826,066.37 788,953.61 800,821.76 Other Real Estate 28,750.00 20,600.00 24,600.00 Bonds Borrowed 20,000.00 19,000.00 19,000.00 Stocks 2,000.00 2,000.00 2,000.00 Other Resources 43,107.65

War Savings Stamps Cont. Guaranty Corp. _____________ __________ __________ Total $1,109,043.09 973,663.83 945,239.23 "Capital 50,000.00 50,000.00 50,000.00 Surplus 60,000.00 60,000.00 60,000.00 Undivided Profits 13,190.73 4,146.45 4,311.61 Time Deposits 98,803.44 69,404.27 68,267.20 Demand Deposits 640,178.09 484,236.58 465,669.08 Savings Deposits 21,399.75 30,282.86 53,817.73 Other Bank Deposits 99,840.13 60,596.16 30,576.20 Bills Payable 79,202.96 195,997.41 193,597.41 Rediscounts 26,127.99 Bonds Borrowed 20,000.00 19,000.00 19,000.00 Due War Finance Corp. Cashiers Checks 300.00 _____________ __________ __________ $1,109,043.00 973,663.83 945,239.23"

The actual condition of the bank on March 4, 1926, as found by the bank examiners, is as follows:

"Loans and discounts, personal or collateral ......... $728,079.07 Loan, Real Estate .................................... 58,465.74 Daviess County Warrants .............................. 31,566.54 Overdrafts ........................................... 9,763.72 U.S. Liberty Bonds, belonging to bank ................ 434.26 Real Estate Banking House ............................ 12,000.00 Furniture and Fixtures ............................... 4,975.00 Due from Banks ....................................... 23,272.88 Cash ................................................. 4,078.15 Cash items ........................................... 2,813.55 Bonds Borrowed ....................................... 19,000.00 Other Real Estate .................................... 24,600.00 Stocks — Sixteen Shares Farmers Bank, Jameson, Mo. ... 2,000.00 Cash short ........................................... 23.47 Shortage in account with Fidelity National Trust Co. K.C. Mo. ......................................... 3,000.00 Loans short .......................................... 1,658.87 Bills Payable, more than they show on their books .... 10,960.20 ___________ Total Resources .................. $936,691.45

"LIABILITIES

"Capital ............................................. $ 50,000.00 Surplus .............................................. 60,000.00 Undivided Profits, Net ............................... 3,145.23 Time Deposits ........................................ 67,267.20 Individual Deposits .................................. 438,727.85

Due to Banks ......................................... 48,997.92 Bills Payable ........................................ 219,557.61 Bonds Borrowed ....................................... 19,000.00 Savings Accounts ..................................... 29,995.31 Daviess County Warrants, Long ........................ 100.31 Individual deposits, Short ........................... .20 ___________ "Total Liabilities ................... $936,691.45

R.E. SHELBY, State Bank Examiner in Charge."

Only $4,000 was collected on the item of $23,272.88, due from other banks. The balance was retained by the banks having the deposit and applied to the indebtedness of the Farmers Exchange. It may be noted here that no part of the $4,000 collected was from the Fidelity National. Notes aggregating over $300,000 were held as collateral by other banks and sold by these banks, the proceeds being applied on the indebtedness of the Farmers Exchange. The commissioner received notes and loans aggregating $481,187.88. Of this amount the commissioner collected $106,443.07. It is estimated that not more than $20,000 additional will be collected, the balance being worthless. The loans on which the collections were made originated during the years 1917 to 1926, inclusive. The commissioner also collected from overdrafts, United States Bonds and the sale of the banking house and fixtures, a total of $17,806.22; cash items, $1,682.56; real estate, $3,582.50; from the bonds of the president and cashier, $2500; cash in vault $4,078.15, making a total of all collections of $140,092.50. The commissioner in charge estimates the amount that probably will be collected out of the remaining assets to be approximately $30,000. This means that the commissioner will have about $170,000 to pay the costs of administration and distribute among the creditors. However, approximately $160,000 has been realized on the notes aggregating $303,689.06 held by city banks as collateral. The banks holding these notes collected that sum and have given the commissioner credit for the amounts collected, reducing the indebtedness of the Farmers Exchange by that sum.

Respondents filed an additional abstract of the record, insisting that the facts therein detailed are material to the issues in the case. In addition to those we have embodied in our statement, we quote from respondent's abstract, the following:

"It was further shown in evidence, conceded and admitted, that on May 12, 1923, the bank obtained $115,000 of new assets by taking over the Gallatin Trust Company. During the last year of its operation it borrowed from its city correspondents the sum of $120,000 additional. It obtained over $200,000 through building and loan mortgages, which it placed upon its own real estate, and from the sale of its notes to its customers."

The additional abstract of the record also discloses that the court allowed as general claims an amount aggregating $487,952.85. It disallowed preferred claims filed in the sum of $246,788.18. The amount of preferred claims allowed was $22,264.65.

Pursuant to an agreement by the attorneys representing the defunct bank or the bank commissioner and the attorneys representing the various claimants, the circuit court heard all of the disputes as to the allowance of claims in one proceeding, and all evidence taken during this hearing was to be considered by the court as applicable, so far as the same was competent, relevant and material, to each and all of the claims presented for allowance.

Additional facts will be stated in the course of the opinion, if deemed necessary.

The assignments of error in appellant's brief are as follows:

"The court erred in refusing to allow the claim of plaintiff, Katherine Porterfield, as a preferred claim.

"The court erred in refusing to allow the claim of Katherine Porterfield as a common claim."

The order of the court does not specify upon what ground the claim was denied. The respondents contend that the decree appealed from herein is not merely a judgment on appellant's claim, but that, by reason of the agreement of the attorneys referred to in the statement, the decree is an Judgment equitable separation of the property and assets of the as Whole. bank among all of the claimants; that this appeal then is to modify that portion of the decree affecting appellant's claim. We interpret the agreement merely to mean, that, in the interest of time and labor, all the evidence be submitted to the court in one proceeding; that any and all evidence adduced should be considered by the court, in so far as competent, material and relevant, in support of or against any claim presented at this hearing. Except for the agreement, much of the testimony would have to have been offered separately as to each claim, requiring much useless time and labor. Agreements of this nature are commendable and should be encouraged. Courts, therefore, should place a liberal construction upon such procedure and not deny any right to the litigants not expressly surrendered. We will therefore treat the appeal not as asking for a modification of the decree on all of the claims, but as an appeal from a separate judgment against plaintiff, to be affirmed reversed or modified, as we deem proper, as though it were a separate suit.

Another theory advanced by respondent is that plaintiff as guardian and curator ratified and affirmed the actions of the bank, and therefore the relation of debtor and Ratification. creditor existed; also, that plaintiff ratified the conduct of the bank of investing the money of the wards in worthless notes.

In approaching this question, we must keep in mind that the plaintiff in this action is not dealing with her own property, but she stands before the court in a representative capacity of guardian and curator for minor children. In this capacity plaintiff has certain duties to perform, by virtue of the mandate of the Missouri statute. Failing in these duties, a guardian is subject to removal by the probate court. Section 418, Revised Statutes 1929, provides in part, as follows:

"Guardians and curators shall, unless the money be invested in improving the real estate of the wards as hereinafter provided, loan the money of their wards at the highest legal rate of interest that can be obtained, on prime real estate security, or invest it in bonds of the United States, or of the State of Missouri, or of the federal farm loan bank except where the estate is less than three hundred dollars, in which case good personal security may be taken, and shall account for all such interest received, which shall be charged in their annual settlements. . . ."

It was therefore the duty of plaintiff to invest the funds in question in the manner provided by the section of the statute quoted. The bank and Dr. Thompson were charged with knowledge of this provision. Dr. Thompson as cashier of the bank had personal knowledge that the funds in question were the property of minor children. Thus, with full knowledge of the situation, Dr. Thompson, as cashier, proposed to plaintiff that the bank invest the funds as the statute provided, to-wit, on prime real estate security. The plaintiff issued the check to Dr. Thompson, as cashier, with that understanding. Dr. Thompson assured plaintiff and the probate court that the funds had been so invested. There is no evidence whatever that plaintiff at any time prior to the closing of the bank knew that the funds had not been so invested. The fact that plaintiff drew checks on the bank is of little consequence. The first check was not issued until 1924. The interest that should have been collected on the funds far exceeded the amount of the checks. As late as 1925, at the suggestion of the probate court, plaintiff inquired of Dr. Thompson what security was being held on certain notes. Dr. Thompson at that time told plaintiff the particular security held on each note. True, this information was false. Plaintiff, however, inexperienced as the evidence discloses her to be in business matters, did not suspect anything wrong. We therefore rule, that even if plaintiff were dealing with her own property, there was no ratification of the transaction prior to the closing of the bank. Ratification has been defined in law to be "the approval by act, word, or conduct, of that which was attempted (of accomplishment) but which was improperly or unauthorizedly performed in the first instance." [33 Cyc. 1529.] Also: "The acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances, is a ratification." [33 Cyc. 1529, note 28.]

A short time after the Finance Commissioner had taken charge of the bank's assets, plaintiff called for her property as guardian and curator. The deputy commissioner in charge delivered to plaintiff an envelope containing notes aggregating Waiver. $20,000 or more, with the comment, "They are not worth a dime." This, according to the evidence, is the first information plaintiff had received that the funds of her wards had not been invested in real estate security. Respondents insist that plaintiff, with this information, waived any right she might have had by accepting the notes, receipting therefor, calling on the makers for payment and taking renewals on a number of the notes and obtaining judgment and having execution issued. At the trial plaintiff offered to return all she had received to the Finance Commissioner. If plaintiff were dealing with her own property, we would be confronted with the question of whether or not plaintiff, by her conduct, ratified the actions of the bank. Not so, however, when plaintiff is acting as guardian and curator, as we shall presently see. Section 418, above quoted, speaks in no uncertain terms with reference to the manner in which the funds in the hands of a guardian and curator must be invested. If funds are otherwise invested, except as provided by statute, it is unlawful. Even the probate court cannot legally authorize the investment of such funds, except as prescribed. Therefore, the action of the bank, with full knowledge of the situation in this case, in taking the money of the wards and attempting to give the guardian and curator worthless notes in lieu thereof, was not only a violation of the bank's agreement, but was contrary to the provisions of the statute referred to. Such conduct of a third person in dealing with property of a ward cannot be ratified by the guardian and curator on behalf of the ward. Plaintiff had no power or authority to waive any right the wards may have had against the bank or the Finance Commissioner. She was legally bound to exhaust every legal remedy available to redeem the wards' property. A guardian's authority does not extend to the doing of any act detrimental to the ward. [28 C.J. 1125, sec. 210, and cases cited; Stockyards National Bank of South Omaha v. Bragg et al. (Utah), 245 P. 966; Johnson v. Bank, 56 Mo. App. 257; Horine v. Horine Funk, 11 Mo. 649, l.c. 653; Naeglin v. DeCordoba, 171 U.S. 638.] We rule, therefore, that the guardian did not by her conduct ratify the unauthorized acts of the bank in question, but rather, that it was her duty to take every step reasonably necessary to preserve her wards' estate.

We now come to the serious question in the case. In order for appellant to be entitled to a preference, we must Trust Fund: find: first, that the liability or relation created Enhancement. on the part of the bank was that of a trustee and cestui que trust and not that of a debtor and creditor; second, that the trust fund swelled the assets of the bank and as such came into the possession of the Finance Commissioner.

As to the first, enough has been said that unquestionably the relation of trustee and cestui que trust existed. This is not seriously denied by respondents. As to the second, the respondents insist that the evidence conclusively discloses that the entire fund in question had been dissipated by the bank as trustee and no part reached the Finance Commissioner; that therefore a preferred claim cannot be allowed. The contest is between the general creditors and the claimant of a preferred claim. The general creditors are entitled to all of the assets belonging to the debtor. The preferred claimant, in order to impress his claim, must show that his property or money was held in trust by the debtor; that in justice it should be returned and that in reality it does not form a part of the assets of the debtor's estate. Therefore, no injustice is done the general creditors by returning claimant's property. The rule followed in Missouri does not require that the identical property or thing be pointed out in order for plaintiff to be entitled to a preferred claim. But, if he can show that his property has been commingled with the property of the trustee, that it has enhanced the assets of the trustee, and that the Finance Commissioner came into possession of assets so enriched, by reason of the transaction that brought plaintiff's property into the hands of the trustee, then plaintiff is entitled to a preference. This is undoubtedly based on sound reason and justice. [Horigan Realty Co. v. Flynn, 213 Mo. App. 591, 253 S.W. 403; Nichols v. Bank of Syracuse (Mo. App.), 278 S.W. 794; Thompson v. Bank of Syracuse (Mo. App.), 278 S.W. 810; Evangelical Synod of North America v. Schoeneich, 143 Mo. 652, 45 S.W. 647; State ex rel. Attorney-General v. Page Bank, 322 Mo. 29, l.c. 36, 14 S.W.2d 597; Consolidated School District v. Citizens Bank (Mo. App.), 21 S.W.2d 781; Huntsville Trust Co. v. Noel (Mo. Sup.), 12 S.W.2d 751; In re Linn County Bank (Mo. App.), 1 S.W.2d 206; Mann v. Bank of Greenfield (Mo. Sup.), 20 S.W.2d 502, l.c. 507; Schulz v. Bank of Harrisonville, 246 S.W. 614; National Bank v. Insurance Co., 104 U.S. 54, l.c. 68, 69; Pearson v. Haydel, 90 Mo. App. 253, l.c. 262, 263; Midland National Bank v. Brightwell, 148 Mo. 358, 49 S.W. l.c. 995.]

We will now analyze the transaction between plaintiff, as guardian, and the bank, and see whether the bank's assets were enhanced by the $20,000 in question, and, also, whether or not the assets so enriched passed into the hands of the Finance Commissioner. The bank received the $20,000 check, not as a general deposit, but for a special purpose — that of investing the funds in real estate loans. Its duty, therefore, was to collect the amount and invest the funds as agreed. When the bank received the check it endorsed the same and gave plaintiff credit for the $20,000 as a general deposit. The bank, by that action, made the check its own and so treated it by sending the check to the Fidelity National to be credited to the Farmers Exchange account. The bank then proceeded to issue debit slips against the general deposit in its own bank and charge plaintiff's account therewith by placing worthless notes in an envelope for plaintiff, until the entire fund was exhausted. This conversion was completed within thirty days. The record discloses that during this period the Farmers Exchange Bank drew drafts against the Fidelity National, the total of which far exceeded $20,000. In the ordinary course of business a bank receives cash, or its equivalent, for drafts issued to its customers drawn on its correspondent banks. The financial condition of the bank was bettered by having $20,000 more cash and $20,000 less worthless notes. If any notes of value were originally placed in plaintiff's envelope, they were extracted and replaced with notes that were worthless, since all agree that the notes plaintiff received were of that nature. That being true, it matters little how we figure the transaction. The ultimate result is the same. The Farmers Exchange had $20,000 to which it was not entitled, and for which it gave nothing. After a careful consideration of this matter from all angles, we are forced to the conclusion that if it had not been for this $20,000 the Finance Commissioner would have received $20,000 less in assets, and the worthless notes received by him would have aggregated $20,000 more.

The comment by the Kansas City Court of Appeals on this subject in Nichols v. Bank of Syracuse, 278 S.W. l.c. 797, which is discussed at length by respondents in their brief, we think especially applies in this case, where the court said:

"When all of the money arising from general deposits and from the receipt of a trust fund goes into one general mass, and is used in the general business of the bank, as was done in this case, then the whole assets of the bank are subject to a lien in favor of the cestui que trust. In order to have a dissipation of the trust fund, it must be shown either that that fund can be traced specifically, and that it has been dissipated, without augmenting the funds of the trustee, or that the general fund with which the trust fund was wrongfully mingled has all been dissipated, and the entire estate of the insolvent trustee has arisen from other sources. . . ." (Italics ours.)

In discussing this and other similar cases, respondents apparently have overlooked the clause italicized. The preferred claim allowed in the Nichols case exceeded the total cash in the bank's vault and the cash to its credit in other banks. It seems to the writer that to deny plaintiff's claim as preferred, we must overrule the case of Evangelical Synod v. Schoeneich, supra. In that case plaintiff was allowed a preferred claim in the sum of $3,000. The evidence conclusively discloses that the trust fund had been deposited in the Union Savings Bank, by the trustee, with its own funds. When the partnership (trustee) dissolved, it was insolvent and paid only twenty per cent to its general creditors. The amount on deposit in the Union Savings Bank was only $15.92, the balance having been paid out in the ordinary course of business. Yet this court allowed the preferred claim on the theory that the partnership property was benefited by the use of the money of plaintiff and therefore the general creditors were not hurt by allowing plaintiff's preferred claim. We find the same situation in the following cases: Nichols v. Bank of Syracuse, supra; Thompson v. Bank of Syracuse, 278 S.W. 813, par. 7; Horigan Realty Co. v. Flynn, supra; Johnson v. Farmers' Bank of Clarksdale, 11 S.W.2d 1090, l.c. 1092. The Schoeneich case, supra, has been cited with approval in the following late cases: In re Linn County Bank, 1 S.W.2d 206, 222 Mo. App. 84; State ex rel. Attorney-General v. Page Bank of St. Louis County, 14 S.W.2d 597, 322 Mo. 29, l.c. 36; Consolidated School District v. Citizens Savings Bank, 21 S.W.2d 781. We are justified in finding from the record in the case now before us that plaintiff's $20,000 check in question was utilized by the Farmers Exchange Bank, in violation of its trust, by depositing it in the Fidelity National and selling drafts to its customers drawn against that fund, and that thereby the Farmers Exchange received the full benefit of the fund.

We think the cases cited above fully answer the other contention made by respondents, that the assets which passed into the hands of the Finance Commissioner arose from other sources than the trust fund. We do not so understand the record. It is true, as contended by respondents, that the defunct bank borrowed from city banks, during the last year of its existence, $120,000. This was probably used to pay its debts. The record also discloses that these city banks realized $160,000 on the collateral held by them as security. The $115,000 assets received by the Farmers Exchange Bank in taking over the Gallatin Trust Company were also accompanied by liabilities. There is no showing whatever that the bulk of the assets received by the Finance Commissioner arose by virtue of these transactions. The evidence discloses that the bills receivable constituted the largest item of the bank's assets from 1920 to the day it closed its doors. This item was in excess of $750,000 when the Finance Commissioner took over the bank.

Under the facts disclosed by the record and the authorities cited, we have reached the conclusion that plaintiff, as guardian and curator, is entitled to a preferred claim, on the theory that the wards' property or trust funds swelled the assets of the bank and that the assets so enriched passed to the Finance Commissioner.

We therefore reverse the judgment of the circuit court, with instructions to allow plaintiff's claim as preferred, in the sum of $20,000. It is so ordered. Davis and Cooley, CC., concur.

PER CURIAM:

The foregoing opinion by WESTHUES, C., is adopted as the opinion of the court. White, P.J., and Henwood, J., concur; Ellison, J., not sitting.