Mallett v. Tunnicliffe, as Liquidator

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The following are the facts upon which the decision of this appeal rests; the appellant, Mrs. Mallett, had on deposit with The State Bank of Orlando Trust Company the sum of $13,697.14 in her savings account. On July 15, 1929, she undertook to withdraw her entire savings account from the bank, and was in the act of withdrawing the same when the Vice-President of the bank, with full authority from the bank to act in the premises, and acting for and on behalf of said bank, requested her to retain her savings deposit in the bank, and then and there represented to her that the financial condition of the bank was good, and that the savings deposit would be perfectly safe if left in the bank. The officer of the bank knew that the representations he was making were false and that the bank was insolvent. He made these representations for the purpose of persuading the depositor to rely and act thereon and she then and there did rely and act thereon. By reason of her reliance thereon, and the fact that she retained said savings acount in the bank because of said misrepresentations, said amount was still in the bank when it closed on August 5, 1929. On July 23, 1929, the depositor attempted to withdraw $8,150.00 of her savings from the bank, but the attempted withdrawal was declined because of a rule and regulation which had been adopted by the bank requiring the depositor to give sixty days notice of her intention to withdraw her savings account before it would honor any withdrawal. Notice of this sixty-day rule had been served upon the depositor on July 20, 1929. In making her deposit, the depositor had subscribed her name to a signature card assenting to the rules of the bank governing savings deposits and expressing her willingness to be bound thereby as a part of her savings deposit agreement.

The point to be decided is whether or not the successful persuasion of the depositor by the bank officer not to withdraw her funds on July 15, 1929, was the equivalent of a new deposit of such funds as of that date which would entitle the depositor to a preference on the theory that for a bank to induce one to make a deposit by false representations of solvency is a fraud creating a trust which results in a preferred claim on the part of the defrauded depositor. Secondary to this, is the question of how far the preferred claim can be asserted and against what funds or assets of the insolvent bank in the event that it is sustained as a preference.

The appeal here is from an order sustaining a general demurrer to a bill of complaint filed against the Liquidator seeking to impress a trust for the entire deposit of $13,697.14 against all the assets of the insolvent bank.

At the outset, it may be stated that the facts in the case are sufficient to bring it within the rule laid down in Hinson v. Drummond, 98 Fla. 502, 123 So. 913, wherein Mr. Justice Buford stated the rule to be: "The president and director of bank, who represent to depositor that bank was in sound condition and solvent, and thereby persuades depositor to leave money on deposit, were liable to depositor, where bank was insolvent and depositor lost deposit, since, if president had no actual knowledge of condition of bank, his situation was such that it was his duty to know the truth or falsity of representations, and such party is in law guilty of fraud as much as if he had actual knowledge."

It thus appears that in so far as the particular wrong done the appellant by reason of the fraud and deceit practiced upon her is concerned that appellant has a plain, complete and adequate remedy at law for the recovery of damages for the tort committed against her by the particular officer who made the false representations and others who became tortiously liable with him therefor. It may likewise be said that the bank itself as a corporation became liable in damages for the tort committed by its officer in perpetrating the fraud and deceit referred to and that in an appropriate action at law for damages a judgment could be recovered not only against the officer or officers involved, but against the bank itself as a corporation by reason of such fraud and deceit.

But appellant insists that her rights go further than this, and that by reason of the circumstances, she is entitled to assert and have allowed as a preference against the entire assets of the insolvent bank, to the prejudice of other depositors who did not participate in the fraud and deceit, a claim for her entire deposit, together with interest thereon. A sufficient answer to this contention will be found in the case of State v. Banking Corporations, 251 Pac. (Mont.) 151, where the court said: "It would be a strange doctrine that would permit a creditor to impress his debtor's property with a trust simply because, when a creditor attempted to collect the debt, the debtor falsely represented his ability to pay and thereby obtained forbearance." In another case, that of Veneer v. Cox, 35 S.W. 769, the Court of Chancery Appeals of Tennessee had under review a case where a depositor was induced to leave his deposit in an insolvent bank by the false and fraudulent representation of its President to the effect that the bank was solvent and the deposit was safe. It was held that the depositor sustained the relation of debtor and creditor to each other in denying a claim for preference asserted by the depositor because of the false representations which had been made, the Court said: "But this case is one simply of creditor and debtor, wherein the debtor, by a series of egregious lies as to his solvency and his ability to pay his debts, induces his creditor to forbear pressing the payment of his demand and to continue his relationship as creditor. If such misrepresentations operate in equity to divest title to property, and to convert debtors into trustees for their creditors, we apprehend that the field of trust estates will be immensely enlarged." See also 7 C. J. 732; 1 Miche on Banks Banking, 594, note 1.

In the case at bar it appears that the depositor voluntarily and knowingly continued her relationship as a general depositor, or in other words, as a general creditor of the bank. The fact that she did so through the fraud and deceit of an officer of the bank in inducing her not to change her relationship does not of itself convert the relationship from that of debtor and creditor to one of trustee and cestui que trust. It undoubtedly gives rise to an action in favor of the deceived depositor, as we have pointed out, but the title to the deposit remains the same as it was before the fraud and deceit were practiced. In this respect the situation differs from that wherein a trust is held to be created, where an insolvent bank induces one to make a deposit by false representations of solvency, thereby perpetrating a fraud upon the depositor which entitles the depositor by reason of such fraud to rescind the agreement of deposit by which the relation of debtor and creditor would be created. See Richardson v. New Orleans Debenture Redemption Co., 102 Fed. 780, 42 Cow. C. A. 619; 52 L. R. A. 67; 3 Rawle C. L. 557, and cases cited. In the last mentioned instances, the trust results because of the exercise of the depositor's right of rescission which prevents the title to the deposit from ever vesting in the insolvent bank by reason of the fraud and in consequence the depositor, after having rescinded the deposit because of the fraud, is entitled to trace the deposit and assert a preferred claim against any part of the assets of the insolvent bank with which such deposit may have been commingled.

In this case the facts do not bring it within the rule laid down in Bryan v. Coconut Grove Bank Trust Co., 101 Fla. 947;132 So. 481, because it is nowhere shown that the depositor ever did more than appear at the bank with the intention of withdrawing her deposit; it is nowhere alleged or shown that the attempted withdrawal proceeded to the point of presentation and acceptance of a check on the bank accompanied by the pass book which was the agreed way in which the deposit was required to be withdrawn, according to the allegations of the pleadings in this case. There was therefore no segregation of the deposit, in fact or in contemplation of law, such as was shown to be the case in Bryan v. Coconut Grove Bank Trust Co.,supra. The mere intention and desire of the appellant to withdraw her deposit and thereby discontinue her status as a creditor of the bank, but which was never carried to the point of performance of any of the overt acts required to give it effect as a withdrawal, cannot be viewed as being a withdrawal and redeposit in contemplation of law as contended for by the appellant.

As to the attempted withdrawal of the sum of $8,150.00 on July 23, 1929, which was declined by the Cashier of the bank because the appellant had not given sixty days notice of her intention to withdraw her savings account, the situation is different. Whether or not the appellant was entitled to withdraw her deposit of $8,150.00 as of that date under the circumstances under which she demanded it then depends the validity of the rule and regulation which had been adopted by the bank requiring sixty days notice to be given of intention to withdraw savings accounts. The bill of complaint alleges that such rule and regulation was never validly adopted and was without force and effect as a ground for the bank's refusal to honor the complainant's check. At the time the check is alleged to have been presented, the bank was open for business and was presumably solvent and it was the duty of the bank to honor proper orders drawn upon it for the withdrawal of funds unless by reason of contract to the contrary it had a valid right to refuse to pay its savings depositors on demand. While we recognize the rule that the mere drawing of a check does not operate as an assignment of the fund on deposit in the bank until the check is accepted by the bank, yet it may be logically deduced from the allegations of the bill in this case that the check was accepted for the $8,150.00 for which it was drawn and thereby the fund assigned prior to the closing of the bank to be paid after the lapse of sixty days from the time the check was drawn. The legal effect of this operation was to convert $8,150.00 of the total deposit of the appellant into a special deposit amounting to a segregation of the funds in the bank to be paid to her forthwith or at the end of sixty days, depending upon whether or not the sixty-day rule and regulation was insisted upon. In either event, such special deposit augmented the cash reserve found in the bank at the time it closed and to that extent the same was entitled to be allowed as a preference against such cash reserve fund under the circumstances and to the extent such preferences were held to be allowable in the case of Meyers v. Federal Reserve Bank, 134 So. 600.

The demurrer which the court below sustained was a general demurrer to the entire bill and since there was equity in the bill concerning the claim of preference with reference to the $8,150.00 hereinfore referred to, it was error for the court to sustain the general demurrer. The decree is accordingly reversed and the cause remanded, with directions to overrule the general demurrer and for further proceedings in accordance with the opinion.

BUFORD, C.J., AND WHITFIELD AND TERRELL, J.J., concur.

ELLIS AND BROWN, J.J., dissent.