Zeigler Milling Co. v. Second Nat. Bank

HUGHES, J.

J. W. Hudson was the owner of shares of stock in the Zeigler Milling Co. which stock he had pledged for security of a debt with the Second National Bank. The Bank failed to notify the Milling Co. of the transfer and the Milling Co. paid a dividend of $200.00 to Hudson who in turn endorsed the check back to the Milling Co. to cover a debt which he owed it.

Before the Milling Co. had cashed the check the Bank notified them of the transfer and they then cashed the check, took out what Hudson owed them and offered to pay the difference to the Bank which was refused. An action was brought in the Crawford Common Pleas for the full amount, and judgment was rendered for the Bank. Milling Company prosecuted error claiming that under 8673-3 GC. it was authorized to pay this dividend to Hudson for the reason that stock still remained in his name on the books of the company and that they had no actual notice of the pledge to the bank.

The Court of Appeals held:

1. If a pledgor collects dividends, he holds it as trustee for the pledgee.

2. Applying this principle, Hudson took the money and held it as trustee and equity imposed the duty upon him to turn it over to the rightful owner.

3. The Milling Co. had no right to expect that .Hudson would pay his debts out of funds belonging to another and when it accepted the check it did not change its position or lose its right of action against Hudson.

4. Therefore no business necessity required or justified the Milling Co. in refusing to pay to the Bank the dividend.

Judgment affirmed.