Bolivar County v. Bank of Cleveland

On or about January 1, 1930, one Harrington rented from appellant county four hundred acres in a sixteenth section in appellant county for that year for an agreed rental of four thousand dollars. Thereafter the tenant gave a deed of trust to appellee bank on all crops to be raised during that year on said sixteenth section lands. The tenant was allowed to sell the cotton produced on the lands and to receive the proceeds as if there were no liens upon the crop. He did so and deposited the proceeds to his own credit in appellee bank. There was a short crop and the proceeds were insufficient to pay the amount due the landlord and the advances due to the bank under the deed of trust. The tenant paid the landlord less than one thousand dollars on the rent account, leaving due to the county as landlord more than three thousand dollars. Nevertheless, the tenant, in November, 1930, paid to the bank, by check drawn on his account in said bank, where the proceeds of the crop were deposited, the sum of three thousand dollars. The county demanded of the bank that said sum be paid over by the bank to the county as holder of the superior lien; the bank refused; suit was filed by the county to enforce its demand; and its bill was dismissed by the trial court.

It is contended in support of the decree that the county had waived its lien, but we are of the opinion that the rules on that subject which are applied as against private owners are not available as against a county, which can act only as allowed by statute. There was no statute on this subject at that time. Such a statute was later passed, chapter 159, Laws 1932; but, whether that act is or is not valid, it is of no consequence here, because it had no retroactive effect.

In the next place, it is contended that the bank had no notice that the proceeds of the crop paid over to the bank as aforesaid were in fact proceeds of crops raised on said sixteenth section lands. We have carefully examined the evidence on that issue and, without elaborating upon the details thereof, we are of the opinion that the evidence, reasonably interpreted, and viewing it as a whole, is manifestly sufficient to show knowledge on the part of the bank, or, at least, is sufficient to carry knowledge to the bank of such facts as would put it upon inquiry, which inquiry, if reasonably and prudently followed, would have led to knowledge that the proceeds aforesaid were of cotton raised on said sixteenth section lands.

Thus, we are brought to the simple question whether the proceeds of the cotton sold by the tenant, and which proceeds were deposited by him to his own account and were later paid to the bank on the tenant's debt to the bank, were trust funds impressed with a trust in favor of the superior lienholder, the county. This question we must answer in the affirmative under the settled rule that where a mortgagor or lienor sells the mortgaged property or the property incumbered by any fixed lien and receives the proceeds thereof, the proceeds stand in the place of the thing sold, and the lien attaches to the proceeds as trust funds, Cole-McIntyre-Norfleet Co. v. Du Bard, 135 Miss. 20, 32, 99 So. 474; and the answer upon the whole case is that appellee bank, having notice of the character of these funds as trust funds, could not hold the same upon appropriation to its deed of trust as against the superior lien of the county and thereby convert the bank's inferior lien into a superior encumbrance, doing thus indirectly what it could not do directly.

Reversed, and decree here for appellant.