Hooten v. State ex rel. Cross County , 119 Ark. 334 ( 1915 )

Hart, J.

At the general election in September, 1908, A. H. Hammett was elected treasurer of Cross County. He duly qualified as such treasurer and executed a bond in the sum of $50,000 with F. D. Rolfe and others as his sureties. At the general election in 1910 he was again elected treasurer and executed a' second bond in the sum of $65,000 with W. H. Harrell and others as his sureties. In the summer of 1912, during his second term of office, he made a settlement with the 'county court, and the sureties on his first and second bond were released. He then executed anewbond in the sum of $80,000, which purported to have been signed by the Massachusetts Bonding & Insurance Company as his surety. There arose a question as to whether the Massachusetts Bonding & Insurance ■Company had authorized its agents to sign the bond and at the same term of the county court an order was made setting aside the former order releasing the sureties on the first and second bond. Subsequently, it was ascertained that Hammett had defaulted in his office as treasurer of Cross County, and the amount of such defalcation was ascertained to be m.ore than $21,000. The present action was instituted by the State of Arkansas for the use of ■Cross County against the sureties on Hammett’s first and second bond, the Massachusetts Bonding & Insurance Company, J. C. Hooten, L. C. Groing, the Merchants & Planters Bank & Trust Company, who, it is alleged, converted to their own use funds belonging to the county and in the custody of said treasurer to the amount, principal and interest, of something over $14,000, and against J. H. Hammett and the Bank of 'Commerce of Earle, Arkansas, who, it is alleged, converted to their own use funds of the county in the custody of said treasurer to the amount of $1,000 and the accrued interest.

The chancellor found that A. H. Hammett, as treasurer of Cross County, had defaulted in the sum of over $21,000, and the correctness of this finding is conceded.

The chancellor also found that L. O. Going, J. C. Hooten and the Merchants and Planters Bank & Trust Company, of Harrisburg, Arkansas, were primarily liable for the .amount of money which it is alleged they converted and judgment was rendered against them for that sum.

The chancellor also found that J. H. Hammett was primarily liable for the sum of $1,000 and interest, which it is alleged he .and the Bank of Commerce, of Earle, Arkansas, converted to their own use, and judgment was rendered against him for that amount, and the Bank of Commerce was discharged from any liability thereon.

The chancellor found that much the greater part of the defalcation of the treasurer occurred during the term of his first bond and judgment was rendered against the sureties on that bond in the sum of over $17,000.

Judgment was rendered .against the sureties on the second bond for the defalcation which occurred during his second term of office.

The chancellor held that the Massachusetts Bonding & Insurance 'Company had never signed the bond for which it was sought to be held liable, and had never authorized its agents to do so. Judgment was rendered dismissing the complaint against the bonding company.

The case is here on appeal.

It is contended by counsel for Going, Hooten and the Merchants & Planters Bank & Trust Company, of Harrisburg, that they are not .liable for the amount for which judgment was rendered against them.

On the question of their liability, M. H. Frayser, cashier of the bank, testified, substantially, as follows:

I have been cashier of the Merchants & Planters’ Bank since November, 1906; in July, 1912, J. O. Hooten, who was then sheriff and collector of Poinsett County, was also president of the ¡bank, and had been for about two months prior to that time; he continued as president until January, 1913; L. C. Going was at the time a director of the bank, and was its attorney; on July 26,1912, the bank, through me as its cashier, issued a draft for $13,-000 payable to the order of A. H. Hammett. The draft was drawn upon the Mechanics-American National Bank of St. Louis, our correspondent there; Mr. Hooten gave Ms check on funds in the hank in Ms custody as collector of Poinsett County for the amount; cmy recollection is that Ms check was payable to the hank, and not to Hammett; I gave the draft to Mr. Hooten; if the draft had taken its regular course, it would have been sent to the bank on which it was drawn; the draft did not take that course, but was returned to the bank three or four days after it was drawn; the ledger shows that it was returned July 30, 1912; the draft when it was returned, was endorsed by A. H. Hammett, individually, to himself as treasurer; I knew Mr. Hammett personally and had met Mm and Mr. Going at Wynne some three.or four weeks before this time, but did not talk about the alleged shortage of Mr. Hammett with him; Mr. Going spoke to me about the shortage a week or two before the draft was issued; Going was Mr. Hammett’s attorney, and I knew from what he told me that Hammett would need some money in settling with the county court of Cross County, as treasurer.

J. O. Hooten testified: The draft in question was drawn at my solicitation, and was delivered by the cashier to me; I gave it to L. C. Going; he told me he wanted to borrow it for A. H. Hammett; I returned the draft to the bank on July 30, 1912; it was either delivered to me by Mr. Going or I received it through the mail; I knew that there was a .rumor with reference to Hammett’s shortage, and that there was a great deal of discussion about it; I refused to let Hammett have the money as treasurer, but agreed to let him have it as an individual; there was no understanding as to whether the draft should go through the regular course and be cashed at the St. Louis bank on which it was drawn; I was told that I would get the money back in a short time; I was at Wynne the day the settlement of Hammett was made with the county judge on July 29, 1912, and was in the courthouse a part of the time while the settlement was being made; neither Mr. Hammett nor Mr. Going gave me any written memoranda that the money had been borrowed; I trusted to Mr. Going’s word that it would be returned; after the settlement was made in the courthouse at Wynne, Going and I got in .an automobile and came back to Harrisburg; we came by Mr. Hammett’s house, and Going went in and talked to Mm a few minutes; I knew that the draft enabled Mr. Hammett to make his settlement with the. county court because I heard them talking about it during the settlement.

The draft was introduced in evidence and, with the endorsements, is as follows:

“MERCHANTS AND PLANTERS BANK & TRUST COMPANY.

“Merchants '& Planters Bank. No. 7912.

“Harrisburg, Arkansas, July 26,1912.

“Pay to the order of A. H. Hammett $13,000 (thirteen thousand) dollars, in current funds. M. H. Frayser, Cashier.

“To Mechanies-American National Bank, St. Louis, Mo.

(Endorsed.) “Pay to the order of A. H. Hammett, treasurer of Cross County, Arkansas.” (Signed) A. H. Hammett. Pay to the order of J. C. Hooten (then comes a space, beneath which is written “Treasurer of Cross County, Arkansas.”) *

L. C. Going testified as follows: I was Hammett’s attorney and think the draft in question was returned by mail to Mr. Hooten by Mr. Hammett; I am sure I did not receive it from Hammett; Mr. Hooten delivered the draft to me at Wynne and the draft was used in making the-settlement of Hammett, as treasurer, with the county court of Cross County; I had learned that $13,000 would be required by Mr. Hammett to make his settlement as treasurer, and arranged to get the money for that purpose; the draft was payable to A. H. Hammett, individually, and he was required by the county court to endorse the draft to himself as treasurer.

(1-2) Under this state of facts it can not (be doubted that the draft was converted by Going and Hooten. “Any distinct act of dominion wrongfully exerted over one’s property in denial of his right or inconsistent with it, is a conversion.” Cooley on Torts (3 ed.), vol. 2, p. 859.

“Anything which is the subject of property, and is of a personal nature, is the subject of conversion.’’ Id. 856.

(3) From the above testimony it’ appears that Going procured Hooten to arrange to get $13,000 for Hammett to use in his settlement as treasurer with the county court. Hooten procured the cashier of the bank to issue a draft upon a bank in St, Louis for the sum of $13,-000, payable to A. H. Hammett, individually. This draft was delivered to Going for the purpose of being delivered to Hammett to be used in his settlement. When the draft was delivered to Hammett it became his individual property and represented that much nopney. The county court would not accept a draft payable to Hammett individually in his settlement as treasurer of the county; Hammett then endorsed the draft to himself as treasurer of the county, and the county judge accepted the draft in settlement. By this endorsement, Hammett transferred the funds from himself as an individual to himself as treasurer of the county. As such treasurer, he was custodian of the funds of the county and the money represented by ■the draft thereafter belonged to the county. Neither Hammett, Hooten or Going had any right to it. When they returned the draft to the bank at Harrisburg without collecting it and placing it to the credit of Gross County, they converted the money represented by the draft to their own use and became liable for it to the State for the use of the county.

(4) It is contended, however, that the bank at Harrisburg is not liable. We think it is liable for two reasons : in the first place, the cashier of the bank knew that Hammett was reported to be short in his accounts as treasurer of the county and that the draft was procured to be used in his settlement with the county court. The cashier of the bank is its chief executive officer, through whom its financial operations are conducted, and by whom its debts are received and paid and its securities taken and transferred. By virtue of his office, he is generally entrusted with the bank’s funds and securities, and charged with the duty of superintending its books, pay-merits and receipts as ia moneyed institution. Mitchie on Banks and Banking, vol. 1, section 54; Id., section 102; 3 R. C. L., section 71, page 444.

It follows that the 'knowledge of the cashier was the knowledge of the bank. The cashier knew that the funds were loaned that Hammett might make his settlement as treasurer of 'Cross County with the county court, and thereby make good a shortage in his account. The bank, therefore, knew that the money represented by the draft was to become the property of Cross County, and that thereafter Hammett would have no title to the money, and would only be entitled to hold it as custodian for-the county by virtue of his office as treasurer.

Hence, we are of the opinion that under the facts in this case, the bank was also liable for the conversion of the draft. In addition to this it will be noted that the county court required Hammett to endorse the draft and make it payable to himself as treasurer of Cross County. When the draft was delivered back to Hooten, it was not again endorsed by Hammett. It was endorsed by Hooten as treasurer of Cross County. Hooten was not treasurer of 'Cross County, but was sheriff and collector of Poinsett County. It was evidently the intention to have Hammett endorse the check back as treasurer of 'Cross County, but he did not do so, and the draft was returned to Hooten un-endorsed by him.

(5) It is well settled that the purchaser of a check who obtains title without the endorsement by the payee holds it subject to all equities and defenses existing between the original parties, even though he has paid full consideration without notice of the existence of such equities and defenses. 5 R. C. L., par. 59, p. 536.

(6) The draft, by the endorsement of Hammett as an individual to himself as treasurer of the county, became the property of the county. It was not thereafter endorsed by Hammett either individually or as treasurer of the county, and when the check was returned to the bank at Harrisburg in this condition, the bank was charged with knowledge that the draft was the property of 'Cross County because that fact was apparent from the face of the draft, and the endorsements thereon. Webster v. Carter, 99 Ark. 458. Quincy Mutual Fire Ins. Co. v. International Trust Co. (Mass.) 104 N. E. 845; Franklin Savings Bank v. International Trust Co. (Mass.), 102 N. E. 363.

(7) It will ¡be noted that the draft was returned to the bank at Harrisburg on July 30, 1912, and was thereafter claimed to be the property of the bank. The chancellor charged the bank, Hooten and Going with interest at the rate of 6 per cent per annum from that date, and it is urged by their counsel that this was error. The reason given is that on unliquidated demands interest is not recoverable. A sufficient answer to that argument is to say that the amount recovered was not an unliquidated demand. It was definite and certain. Besides that, this court has uniformly held that interest may be added on property converted from the date of the conversion.

It is next contended by counsel for the State that the Bank of 'Commerce, of.Earle, Arkansas, is liable for the $1,000 draft issued by it to James H. Hammett on July 26, 1912, iand in this contention we think counsel are correct. The draft as issued was payable to A. H. Hammett or order. He endorsed it, “Pay to the order of A. H. Hammett, treasurer of Cross County, Arkansas. (Signed) A. H. Hammett.” No other endorsement appears on it. When the draft was returned to the bank on August 5, the letter “J” had been written over the letter “A” in the name of A. H. Hammett, preceding the words, “treasurer of Cross County, Arkansas.” The alteration is shown to be clearly apparent. Following the name A. H. Hammett, the words “treasurer of Cross County” had been erased. The original words, however, are shown to be clearly discernible and were so to the cashier and bookkeeper of the bank when the draft was presented to them while on the witness stand.

Under the authorities which we have already cited, the bank was charged with notice of these alterations, and if inquiry had been made, the information that the draft had already become the property of Cross County would have been obtained. Therefore, the bank took it, upon its return, .subject to the rights of Cross County. In short, the 'erasures and interlineations on the endorsement showed that the check had been transferred to the treasurer of 'Cross County, and had thereby become the property of the county.

For this reason the bank is liable and the chancellor erred in rendering judgment in its favor.

(8) It is also contended by counsel for the State that the Massachusetts Bonding & Insurancé Company is liable on the bond purported to have been executed by it. In this contention we think counsel are in error. It appears from the record that the company had a local agent 'and ia local attorney in the town of Wynne, and that application was made to them to execute a bond as surety for Hammett ias treasurer of Cross County. Hammett had been required by the county court to execute a new bond and fifteen days had been given him within which to execute it. On the last day he approached the local agents of the bonding company at Wynne for the purpose of procuring the company to sign his bond as surety. The local agents informed him that they had no authority to execute certain bonds of a designated amount, and that they had no authority whatever to execute the bond in question for their company.. They testified, however, that they called up the general agent of the company in Mississippi, and that he told them to execute the bond and send it for their approval. The general agent of the company in Mississippi testified that he did not talk with them on the occasion in question, and that he was at that time away on his vacation, and not in the town where his office was located.

In this he is corroborated by the chief clerk in his office, who stated that he was the person who talked with the local agents at Wynne, and said that he distinctly told them that they had no authority to sign the bond in question, that his office had no such authority, and that the bond would have to be sent on to the home office for its signature.

The general agent also testified that he had no authority to issue the bond in question, and that the clerk in his office was only given authority to sign his name to snch papers as he himself had power to sign. It was shown that the county judge had knowledge of the limitation of the authority óf the agents before he approved the bond.

The chancellor found that the agents had no authority either real or apparent to execute the bond, and we think his finding is not against the preponderance of the evidence.

(9) Again it is contended that the bonding company ratified the execution of the bond, but we think it is apparent from the record that it did not do so. Sometime after the bond was executed and approved by the county court it came to the knowledge of the company that it was reported to have executed such a bond, and it took immediate steps to repudiate any such action on its part and disclaimed any authority on the part of its agents to execute such a bond. It communicated at once with its general agent in Mississippi, who was thought to have directed the execution of the bond, and he at once repudiated any knowledge that it had been executed. These facts were at once communicated to the county court of Cross County.

Under these circumstances we do not think the 'bonding company can be said to have ratified the action of its agent in executing the bond, and are of the opinion that the chancellor was correct in holding that the bonding company was not liable.

It appears from the record that all the defalcations for which the chancellor held the sureties on the first bond occurred during Hammett’s first term in office, and for that reason the chancellor correctly held the sureties on that bond liable.

It appears also that a certain part of the defalcation occurred during Hammett’s second term in office 'and the chancellor correctly held the sureties on that bond liable therefor.

The record in the case is voluminous, and we have not attempted to set out the testimony which was before the chancellor in detail. We believe, however, that we have set out the substance of the testimony applicable to the issues raised by the appeal. We have examined and considered the whole record carefully, and have reached the conclusion that the decision of the chancellor was correct except as to the liability of the Bank of Commerce of Earle, as indicated in the opinion. The decree of the chancellor will, therefore, be affirmed except in that regard, and that part of the decree will be reversed and judgment will ¡be entered here in favor of the State for the use of Cross County against the Bank'of Commerce of Earle, Arkansas, for the sum of $1,000, with interest thereon at the rate of 6 per cent from August 5,1912, the date on which the draft was returned to the bank and converted by it to its own use.