United States Fidelity Co. v. United States Nat. Bank

Me. Justice Bubnett delivered the opinion of the court. 1. Having, as surety, paid to the new guardian the amount of its principal’s defalcation, the plaintiff is subrogated to all the rights of the trustee to whom the payment was made, for the purpose of reimbursing its loss; so that, if the last guardian had-been entitled to call upon the defendant to pay the balance of the guardian account with it, the plaintiff may do so itself by virtue of the subrogation. This is true as a matter of law, and in this instance is placed beyond controversy by the assignment mentioned. No [365] contention is urged on this point. It rests upon a well-recognized principle of law for the protection of sureties who are compelled to make good the defaults of those for whom they have given bonds. 2. Indisputably and to the knowledge of the defendant, the $1,060 deposit was the property of the wards. By crediting it to the separate account of “.Tames M. Bridges, Guardian,” the bank engaged to pay it out only on the order of that representative person, and not upon the check of some natural person. There was a natural person and there was a representative person. The former was “James M. Bridges,” and the latter was “James M. Bridges, Guardian,” and, so far as their financial affairs were concerned, they were as distinct from each other in their relations to the depositary bank as Jones and Brown or any other two of its customers having no common monetary interest. 3. It is true that the guardian might have negotiated the original check drawn in his favor for the amount due to his wards and deposited the proceeds to his private credit in the bank cashing it or in any other institution of the kind, and the depositary, having no further knowledge, would be protected in paying the checks drawn against the deposit and signed in the personal name of the individual, even though he had also the office of guardian. This is upon the principle that the bank is bound to respond to the checks of the party with whom it contracts acting in the character in which he stipulates. This is the teaching of these precedents cited by the defendant: Munnerlyn v. Augusta Savings Bank, 88 Ga. 333 (14 S. E. 554, 30 Am. St. Rep. 159); Coleman v. First National Bank, 94 Tex. 605 (63 S. W. 867, 86 Am. St. Rep. 871); Interstate National Bank v. Claxton, 97 Tex. 569 (80 S. W. 604, 104 Am. St. Rep. 885, 65 L. R. A. 820); Safe [366] Deposit & Trust Co. v. Diamond National Bank, 194 Pa. 334 (44 Atl. 1064); Batchelder v. Central National Bank, 188 Mass. 25 (73 N. E. 1024); Hood v. Kensington National Bank, 230 Pa. 508 (79 Atl. 714). Such cases justify the defendant in this instance in paying out of the guardian account the checks signed “James M. Bridges, Guardian, ’ ’ although he afterward abused his trust and dissipated the funds thus obtained. 4. But the transactions in the instant case are not cast in that mold. In receiving the separate deposits and opening the two accounts the bank contracted disconnectedly with two distinct individuals. With each of them, by operation of law, it covenanted to keep the deposit and pay it out only upon the check of the party with whom the bank contracted. It is not pretended that either Bridges, natural person, or Bridges, guardian, ever gave any directions to pay the deposit of one to the order of the other or attempted to make any new or different contract about the trust fund. The original agreement remained unimpaired through all the course of the events involved, and the bank had no right to change the contract on its own initiative in the absence of the other party’s consent. As said by Mr. Justice Matthews in National Bank v. Insurance Co., 104 U. S. 54, 64 (26 L. Ed. 693): “The contract between the bank and the depositor is that the former will pay according to the checks of the latter, and, when drawn in proper form, the bank is bound to presume that the trustee is in the course of lawfully performing his duty, and to honor them accordingly. But when against a bank account, designated as one kept by the depositor in a fiduciary character, the bank seeks to assert its lien as a banker for a personal obligation of the depositor known to have been contracted for his private benefit, it must be held as having notice that the fund represented by the account is not the individual property of the de [367] positor, if it is shown to consist, in whole or in part, of funds held by him in a trust relation.” The same distinction is noted in Munnerlyn v. Augusta Savings Bank, 88 Ga. 333 (14 S. E. 554, 30 Am. St. Rep. 159), and others of the defendant’s citations. The doctrine is applicable to the defendant in the following manner: Bridges, natural person, had exhausted his private account, and it had been closed. His personal checks, drawn upon the bank thereafter,' constituted overdrafts which the drawee might have rejected with impunity. It did not do so, but, on the contrary, honored them, and immediately reimbursed itself by charging.the amounts to the guardian account. It had no more right to do this than it had to pay the check of Jones out of Brown’s deposit. It is conceded that, if Bridges had borrowed money of the bank on his individual note, the bank could not hold out the amount due thereon when the guardian account came on for settlement. The substance of what the defendant did is just the same, if not worse; for it extended credit to Bridges on his individual overdrafts and immediately appropriated the money of others to their payment. Having actual knowledge of the distinction between the two funds, and having expressly contracted with that feature in view with two different characters separately, the bank is bound by its own agreement which it violated in applying the guardian fund to the extinction of the credit it extended to Bridges on his overdrafts. The stipulation, as well as the whole course of the defendant’s contention, leaves out of the calculation the plain distinction between Bridges in his private character and Bridges in his fiduciary relation. The difference was preserved by all concerned in the original agreement. It has never been lawfully changed, and must be respected [368] now. The deposit by the guardian remained as a trust fund- belonging to the wards until legally drawn out upon the check of the guardian acting in that capacity. The bank, by its wrongful act in paying out the funds on the private checks of another, made it possible for that other to squander the money of the wards, and thus became in effect a joint tort-feasor liable for the resulting defalcation. A kindred case is De War v. First National Bank, ante, p. 260 (156 Pac. 1038), where, in an opinion by Mr. Justice Benson, the defendant bank was condemned for the act of its president in taking the money of one depositor and applying it to cover the overdraft of another. The defendant, however, secured a reversal on another ground. All the evidence is before us in the bill of exceptions. There is no dispute about the facts. The only contention involved is the legal conclusion to be drawn from them. Under such circumstances, as empowered by Article YU, Section 3, of the Constitution, we direct that a judgment be entered in the Circuit Court in favor of the plaintiff and against the defendant for $616.90, together with costs and disbursements. The judgment of the trial court is modified accordingly, and the cause is remanded for that purpose. Modified. Mr. Chief Justice Moore, Mr. Justice Benson and Mr. Justice McBride concur.