Love v. Little

I think the fund here involved is, clearly, a trust fund. J.R. Broadaway leased a plantation from L. Freeman Little, and was furnished by W.W. Nevins with money and supplies to operate same, it being understood between Broadaway, Little and Nevins that the cotton produced on the plantation would be sold to the Staple Cotton Co-Operative Association, and the check would be made payable to these parties jointly, Broadaway, Little, and Nevins being named therein as payees. It was further agreed that the Citizens' Bank Trust Company of Yazoo City, Mississippi, would be the custodian of the check, and that it would hold the funds until an agreement was reached between the parties as to the amounts to be paid to each.

The check involved in this suit amounted to something over one thousand five hundred dollars, and the bank had authority to indorse by signing the name of the payees thereto, which it did and collected same.

Thereafter, Broadaway secured the consent of Nevins to use all the funds, except that due to Little for rent of the plantation. Broadaway applied to the bank for the funds, above the amount due to Little for rent, and the bank refused to pay such funds to him. Little had directed the bank to act as his agent for the collection of rent due him, and to pay his taxes due to Yazoo county, he being a nonresident, and to remit the balance to him.

The bank deposited the check when indorsed to an account it carried on its books as "J.R. Broadaway Rent Account." Of course this entry on the books did not give any person the right to draw against this account. The cashier of the bank, in explaining the purpose of this entry, testified as follows:

"Q. When you put the money in the account of J.R. Broadaway rent account, what was your purpose in doing that? A. To keep Mr. Broadaway from checking against it in case he attempted to. In other words, if Mr. Broadaway gave a check on our bank, we could turn it down because he had no funds in his account.

"Q. It was your idea that you would thereby protect Mr. L. Freeman Little in his rent, and would also protect Mr. Nevins in his furnish, that was your purpose? A. Yes, sir.

"Q. In that account? A. Yes, sir, that is right.

"Q. What was your intent in regard to the disbursement of that account after opening it up? A. You mean the J.R. Broadaway rent account?

"Q. Yes. A. To pay Mr. Little the six hundred dollars and pay the balance to Mr. Nevins.

"Q. Where you authorized to collect Mr. Nevins furnish account? Did you have Mr. Nevins' authorization to collect the furnish account owed him by Broadaway?

A. My instructions from Mr. Nevins were to endorse the checks for him and see that wouldn't any of the money get away without his knowledge, to hold it there.

"Q. And except for the six hundred dollars (furnish to Broadaway R 20) approximately none of it did get away? A. None of it, no sir, and that was released at Mr. Nevins' request."

As stated above, Little lived in Kentucky, and is not shown to have carried any account with the bank at all, but he instructed the bank to first pay his taxes, after collecting his rent, and then remit him the balance.

The bank, under these circumstances, had no right to convert the money belonging to these parties to itself. None of them had authorized the bank to deposit the funds due them, or to make the bank a debtor to them. Broadaway attempted to have his part, something over three hundred dollars, with the consent of Mr. Nevins, deposited to his (Broadaway) account, so that he could check against it, and the bank refused to do this, showing clearly that the bank regarded the matter as one of principal and agent, rather than debtor and creditor. The bank had attempted to pay Little's taxes, but the sheriff was not then ready to receive taxes, and nothing more was done about it. There were sufficient funds in the bank at all times, from collection of checks, to have paid the entire amount of these funds.

It is difficult to see where any relation of debtor and creditor existed. The bank was the agent of these three parties to collect and hold the money until the three agreed how it should be disbursed. Under this agreement, none of the parties had the right to withdraw, to the prejudice of the others, any of the funds.

In Morton v. Woolery, 48 N.D. 1132, 189 N.W. 232, 24 A.L.R. 1107, the Supreme Court of North Dakota announced the rule as follows: "Where a person makes a deposit in a bank for the specific purpose of meeting certain checks to be thereafter issued, the bank, on accepting the deposit, becomes bound by the conditions imposed, and if the money so deposited is misapplied, it can be recovered as a trust deposit." This was a well-reasoned opinion and shows that, where money is placed in a bank, not in the ordinary course of deposits, but to accomplish a specified purpose, the bank must hold the funds for that purpose. On page 1111 of 24 A.L.R., there is a learned case note: "Where there is a deposit in a bank for the purpose of meeting certain checks, or classes of checks, it is generally held that the money thus deposited must be applied to the purposes for which it was deposited; it cannot be diverted therefrom. [Citing authorities.] If a bank receives a deposit for a special purpose, it cannot divert the deposit to other purposes. Union Trust Savings Bank v. Southern Traction Co. [C.C.A.], 283 Fed. 50." See full text of case note.

In Bank of Hickory v. McPherson, 102 Miss. 852, 59 So. 934, it was held that, where a commissioner sells land in partition, and obtains a check from the purchaser payable to him as commissioner, the check, on its face, showed that it did not belong to such person individually, and a bank crediting the proceeds to him individually was liable to the beneficiaries for a misappropriation of the proceeds.

In Ladner v. Ladner, 128 Miss. 75, 90 So. 593, it was held that, where one makes a time deposit in a savings bank, informing the cashier at the time that he desires to place this money in the bank in the name of another party, but so that he (the depositor) can draw the interest while he lives, and that he wishes the money to go to the other person at his death, the facts and circumstances show it was the intention of the depositor to, and that he did, create a perfected parol trust in this fund; the beneficiary thereof being the other person whose name appears upon the deposit slip.

I think, therefore, that the chancellor was correct in holding the funds, in the case before us, to be trust funds, and to be preferred over the ordinary debts of the bank.