| Tenn. | Dec 15, 1916
delivered the opinion of the Court.
This suit was brought by certain sureties on the official bond of Carroll, executed by him as clerk and master of the chancery court of Lewis county, at Hohenwald, to recover from the Phoenix National
It appears that the earlier installment notes had been paid by their makers, but the clerk and master was behind in the payment of the proceeds to the beneficiaries of the fund, and these persons were pressing him for payment.
About a month before the last note matured, Carroll took it to Columbia, in the adjoining county of Maury, to make a disposition of it. He was introduced to Mr. Pulton, the cashier of the Phcenix National Bank, by a reputable member of the Columbia bar, and he proposed a discount of the note to the bank, explaining that the bank at Hohenwald was a small one and not at the time in condition to discount paper. He further stated that the court had ordered a settlement of the estate to which this note belonged, that the parties who were to receive the proceeds had requested him to discount the note, and that they would stand the discount. He further assured Pulton “that everything was regular as to the court. ’ ’
In-fact, no such request had been made by the beneficiaries of the fund, and the court had made no order authorizing or directing any transfer or disposition of the note or for any settlement other than one in ordinary course.
The sureties on Carroll’s bond- were adjudged liable to his successor in office for the use of those interested in the fund; and each of the sureties has paid his pro rata of the liability sum, save one.
The bill of complaint prays that the sureties be subrogated to the rights of the beneficiaries and be allowed to recover of the bank, which was paid the amount due on the note by its makers who had purchased the land at the clerk and master’s sale.
The note was in the form customarily in use in chancery proceedings, as follows:
“Twelve months after date- we promise to pay J. P. Carroll, clerk and master, twelve hundred and forty-six and 88/100 dollars ($1246.88), second deferred payment on the Jones Land, sold by decree of the chancery court of Lewis county, Tenn., with interest from date. This July 5th, 1914.
Gr. W. Staley,
Will. Robinett.”
On the back of the note appears this transfer:
“For value received I hereby transfer the within note, with all its liens and equities, to H. 0. Pulton, cashier. June 3, 1914.
J. P. Caeeoll, C. & M.”
Formerly under the law merchant, and now under the Negotiable Instruments Law, a note in order to be negotiable must be payable to order or bearer. The code provision to the contrary (Shannon section 3506) was impliedly repealed by the uniform act. Gilley v. Harrell, 118 Tenn., 115" court="Tenn." date_filed="1906-12-15" href="https://app.midpage.ai/document/gilley-v-harrell-8300479?utm_source=webapp" opinion_id="8300479">118 Tenn., 115, 101 S. W. 424. The note set out above is not so payable, and it cannot be considered negotiable. Acts 1899, chapter 94, section 1 (4).
Ordinarily, a nonnegotiable note is assignable, but the instrument here involved was not one that was capable of being assigned by any act of him who is named as payee. The instrument was in the custody of the law as a part of the court file in the case of Brown v. Robinett, pending in the chancery court, and as such was not the subject-matter of a delivery which is an element of an assignment or transfer of such an instrument.
If such note be assignable at all, it must be by reason of some order of the court directing its delivery from the court’s files thus terminating its own custody, and authorizing a disposition.
It has never been considered in this State that a note executed to a clerk and master is subject to be assigned, and we think a chancellor would be loath, to say the least, to pass an order for the assignment or discount of notes executed for the purchase money
The note in this case on its faSe carried notice and warning, that it was a part of the record of the chancery court of Lewis county, and of its trust character. ‘ When, therefore, it was purchased by the cashier, the bank aided in a diversion, and could have been held to respond directly, in order to the protection of the beneficiaries of the purchase-money funds represented by the note, in a suit against the bank for* their benefit.
In Bunting v. Ricks, 2 Dev. & B. (22 N. C.), 130, 32 Am. Dec., 699, it was held that a breach of trust occasioned by the misapplication by the clerk of a court of a note held by him in trust is sufficient to charge one (Ricks) who took it, even though in ignorance of the character in which it was held by the officer, but who was cognizant that it had been given to a court commissioner in payment, at a sale made under his direction, in obedience to a decree of court. The note indorsed by the commissioner to the clerk did not on its face, as here, disclose its trust character. Chief Justice Rupi'in said:
“This defendant is obliged to admit that he was aware of that character (of the official who delivered*139 the note to him) and of the interest in the sale of the parties to the suit hy petition. Then Melton’s indorsement eonld satisfy Ricks of nothing in respect of his authority from the court or those' parties, to change the security for the debt by giving to Whitfield this note for his own. . . . One who knew, that, in its inception, the note belonged beneficially to the parties to the suit, could not justifiably rely on any indorsement, even of him to whom the' note was payable, without first ascertaining that those beneficial owners had parted from their interest, or that they or the court had given authority to the person thus disposing of what — at least at one time — was not in fact his, although it so appeared to be.”
For stronger reasons the bank in the pending case must be held to be liable as an accessory to the diversion and loss of the trust fund, since the bank knew that the note was payable to Carroll in his official capacity.
It is urged, however, in defense of the bank that, even if this were true were the beneficiaries of the trust fund suing it, the sureties of the malfeas-ant officer are not entitled.to the equitable remedy of subrogation, since they stood as sponsors for the right conduct and faithfulness of the clerk and master. A like contention was made in the case of U. S. Fidelity, etc., Co. v. Bank, 127 Tenn., 720" court="Tenn." date_filed="1913-04-15" href="https://app.midpage.ai/document/united-states-fidelity--guaranty-co-v-peoples-bank-8300934?utm_source=webapp" opinion_id="8300934">127 Tenn., 720, 157 S. W., 414, but denied.
It is insisted that the case just cited and this case may be differentiated, on the ground that the stat-
If the case of U. S. Fidelity, etc., Co. v. Bank, supra, did not reach to this direct point, the North Carolina case, above referred to, did. The argument was there held to be not well based, the court writing:
“But it is said the equity of the plaintiffs is repelled by the nature of their obligation, as they contracted to be responsible for the frauds and other malfeasances of the clerk, as well as for his nonfeas-ances. Admit it; but to whom are they to be responsible1? To those who can complain of a violation of official- duty, as an injury to them; but not to one who culpably aided or concurred in such breach of duty. The defendant Ricks cannot therefore urge this objection.”
The very transaction between Carroll and the bank itself imported a diversion of a trust fund to which the bank, was accessory.
In our opinion the court of civil appeals erred in reversing the decree of the chancellor. Grant the writ of certiorari, and enter a decree here reversing the decree of the former court and affirming the decree of the latter.