145 S.W.2d 1042 | Ky. Ct. App. | 1940
Affirming in part and reversing in part.
There are two questions presented, namely, (1) whether a devisee and creditor of a decedent's estate may join by amendment to their petition seeking a settlement of the estate an action against a depository bank and the creditors of a discharged executor to recover funds wrongfully paid by him; and (2) whether the bank is liable for the whole amount because it honored checks of the executor given in payment of his personal debts. *704
Richard G. Sommers made certain bequests, including $500 to Mrs. Lorena Guier, and devised the residue to A.L. Scott, whom he named executor. There came into his hands $3,924.84, the principal part of which was proceeds of a War Risk insurance policy and bonus certificate. Suit was filed by Mrs. Guier to construe the will and to settle the estate. It developed that Scott had paid out all of the funds, principally to his own creditors. While the suit was pending he was removed as executor and Florence Gibbs qualified as administratrix de bonis non with will annexed of the Sommers estate. She intervened in the Guier suit and recovered a default judgment against Scott for the sum he had dissipated. Later she sued the Peoples National Bank of Paducah, in which the funds had been deposited, to recover the same from it upon the ground that the bank had knowingly honored the executor's checks to various persons in payment of his individual debts. They were also made parties and a recovery was sought from each of them for the amount he had received. The court ruled that the administratrix de bonis non with the will annexed could not maintain that action either under Section 3846-1 et seq., Statutes, or the common law, and we affirmed the judgment dismissing the suit against the bank and Scott's creditors. Gibbs v. Peoples National Bank,
Meanwhile, the Standard Life Insurance Company, and its receiver, had been awarded a judgment foreclosing a lien on the decedent's real estate, and Mrs. Guier had been declared entitled to $500 as a bequest, which would be in satisfaction of her claim for nursing the decedent. After our decision in the administratrix' appeal, Mrs. Guier filed an amended petition in which she re-affirmed the allegation of her petition seeking a settlement of the estate and other appropriate relief; pleaded the recovery of her judgment, alleging that no part of it had been paid; set up the deficiency judgment of $2,107 held by the insurance company's representatives; and alleged the wrongful payments by the former executor to his personal creditors with the concurrence of the bank as depository. It was further alleged that the plaintiff, Mrs. Guier, and the insurance company's representatives could not collect the full amount of their judgments unless these sums were recovered. Later a joint amended petition was filed by these parties substantially *705 repeating the allegations and prayers of the Guier amendment and alleging that there were other creditors of the estate similarly situated. It was pleaded that all the assets would not be sufficient to pay the decedent's debts and asked that they be prorated among his creditors.
The court overruled special and general demurrers to these amended petitions and proof was taken on the issues. It was adjudged that Sommers' estate was indebted to Lorena Guier in the sum of $500, with interest from December 12, 1936, and to the insurance company's representatives in the sum of $2,107.38, with interest from November 8, 1938, and had theretofore been adjudged. It was further adjudged that Scott as executor had wrongfully and unlawfully paid money of the estate to 16 named defendants in the sums severally set out and that the aggregate would not be enough to pay Sommer's creditors and the costs of administration in full. Accordingly, judgment was rendered against each of those defendants in favor of Mrs. Guier and the insurance company representatives. It was found that other creditors had been paid or had not filed claims. The Peoples National Bank was adjudged to be liable only for the amount received by it from Scott in settlement of his personal note due the bank, viz., $780, and not to be liable for the entire sum wrongfully paid out by him on the ground of its having permitted the diversion of the trust deposit.
The bank appeals from the judgment rendered against it. The other defendants do not appeal. Mrs. Guier and the insurance company's representatives prosecute a cross-appeal from so much of the judgment as relieves the bank from liability for the entire sum dissipated by Scott.
The appellant takes the position that the amended petition of Sommers' devisee and creditor pleads a new and distinct cause of action in seeking a recovery of the dissipated fund from the executor's creditors and from the bank; that the suits may not be joined because one is an action on contracts and to construe the will and the other is an action for a tort; that there was no contractual relationship between the estate and Scott's creditors or the bank, since they were neither creditors nor debtors of the testator; that there was no unity of interest of these defendants and no authority in the *706 petitioners under Section 24 of the Civil Code of Practice to join them in one action. It is further claimed as to many of the defendants that the amount involved was not enough to give the circuit court jurisdiction. If the premises of the argument are true, the appellant's position is well taken; otherwise, it is not.
One who knowingly takes advantage of a devastavit or conversion is answerable to those entitled to the estate. Yager's Adm'r v. President, etc. of Bank of Kentucky,
Ordinarily, the sole right of action for the conversion of the assets of an estate rests in the personal representative. But as we have held in this case, his successor could not maintain the suit to reclaim from the recipients money converted by the former personal representative. The theory is that they are assets that have been administered already. Section 3846-1, Kentucky Statutes, which seemed to have granted such a right had the corollary effect of preventing heirs or distributees from maintaining such action against the delinquent executor or administrator or his surety on account of devastavit except in the special circumstance of refusal of the administrator de bonis non to do so upon request. Fidelity Deposit Company of Maryland v. Barrett,
It is an equitable doctrine that trust funds transferred to third persons having knowledge of their character remain impressed with the obligations of the trust and beneficiaries, or, in the case of the decedent's estate, legatees and distributees may follow and reclaim them. We have specifically recognized that the proceeding for recovery is or may be in equity since generally no one may sue at law except the personal representative. Thomas v. White, 3 Litt. 177,
Undoubtedly the plaintiffs could have maintained separate and individual suits against the several alleged recipients of the misapplied funds to recover a sum sufficient to satisfy their demands as distributee and creditor. The question remains whether those defendants as a group could be brought into the suit to settle the estate.
The statutory authority for the bringing of the settlement suit, Section 428, Civil Code of Practice, prescribes that the "creditors of the decedent, so far as known to the plaintiff, must be parties to the action as plaintiffs or defendants." The beneficiaries of the devastavit committed by a personal representative, of course, are not creditors of the decedent and consequently *708
are not necessary parties to such a suit. Citizens' National Bank v. Boswell's Adm'rs,
In Johnson v. Dodd's Adm'r,
It has been said that one who causes two blades of grass to grow where only one grew before is a benefactor, but such tribute would hardly be deserved by causing two of more lawsuits to be brought and prosecuted when one will achieve the same thing. After the original petition in equity was filed in the instant case by those entitled to file it, they discovered that others than the defendants named had wrongfully come into possession of money belonging to the estate through the wrongful action of the executor, and that without its recovery the payment of their claims and the ultimate end sought in the original suit could not be accomplished until the money was recovered from those who had become debtors of the estate by implication of law. It is to be borne in mind that the settlement is not to be bad as of the date of death but as of the present hour. No reason appears why issues and causes like that before us should not be tried as a branch of the original suit to marshal the assets and distribute them, thereby avoiding an undesirable and unnecessary multiplicity of suits and circuity of action. Cf. Wiman v. First Christian Church,
This is in harmony with the familiar rule that equity will seize all elements and branches of a case and fully determine it. Givens v. Turner,
The case of action against the bank as a depository is not altogether of the same character as that against the recipients of the fund. Although its liability may be regarded as for a tort (American National Bank v. Fidelity Deposit Company,
Under general equity rules relating to the liability of a bank for the diversion of a trust deposit, it was sometimes harsh to apply such a high degree of alertness *711
in the ordinary conduct of business. The rule almost made the bank a surety or overseer of its depositor. The severity appeared where there was no certainty of knowledge of the character of the deposit or of its improper disbursement. We have held under general law that where checks payable to an agent or fiduciary were deposited in an individual account it was charged with knowledge of the character of the fund as a trust, and if it honored checks of the agent or fiduciary to pay his personal obligations, and thus misappropriate the proceeds, the bank was liable. Ducker v. Latonia Deposit Bank,
In 1930, Kentucky adopted in part the Uniform Fiduciaries Act, proposed by the National Conference of Commissioners of Uniform State Laws, which changed somewhat the pre-existing law as to the liability of one dealing with a fiduciary. Acts of 1930, Chapter 14; Section 4711-1, et seq., Kentucky Statutes. As is pointed out in a note in 114 A.L.R. 1088, the provisions of the act do not make due care or negligence the test of liability but, in general, make liability dependent on actual knowledge or bad faith. Section 4711-6, Kentucky Statutes, is as follows:
"If a deposit is made in a bank to the credit of a fiduciary as such, the bank is authorized to pay the amount of the deposit or any part thereof upon the check of the fiduciary, signed with the name in which such deposit is entered, without being liable to the principal unless the bank pays the check with the actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing the check or with knowledge of such facts that its action in paying the check amounts to bad faith."
Section 7 of the Uniform Act contains the following additional provision not adopted in this state:
*712"If, however, such a check, is payable to the drawee bank and is delivered to it in payment of or as security for a personal debt of the fiduciary to it, the bank is liable to the principal if the fiduciary in fact commits a breach of his obligation as fiduciary in drawing or delivering the check."
That additional provision, however, simply expresses the general equity rule apparently recognized everywhere.
Our adoption of the definitions in the Uniform Act (Section 4711-1, Kentucky Statutes) omits that of "good faith," which within the meaning of the act is declared to be something "in fact done honestly, whether it be done negligently or not." In New Amsterdam Casualty Company v. National Newark Essex Banking Company,
"Read in the light of its statutory context, bad faith, with its sinister implications, means knowledge by any responsible agency, officer, or employee, of a bank, of an incriminating state of facts, short of actual knowledge of the breach of trust, but conscious of it and aiding and abetting, or acquiescing in the breach." See Note 114 A.L.R. 1090.
In the absence of the legislative acceptance of the specific definition of "good faith" in the Uniform Act, we are justified in looking to the Negotiable Instruments Act for the meaning of the term "bad faith" used in the Fiduciaries Act. Section 4711-6, Statutes, above quoted. Section 56 of the Negotiable Instruments Act, Section 3720b-56, Kentucky Statutes, declaring that notice of infirmity in a negotiable instrument or defect of title is actual knowledge thereof or "knowledge of such facts that his [the person to whom negotiated] action in taking the instrument amounted to bad faith." The propriety of resorting to that statute is expressed in Union Bank Trust Company v. Girard Trust Company,
"It is well understood that the term 'bad faith' as used in the statute does not necessarily involve furtive or evil motives, but has a commercial sense of disregard of and refusal to learn the facts when available. The circumstances and conditions may *713 be so cogent and obvious that to remain passive amounts to bad faith. Where a purchaser has actual knowledge of suspicious circumstances or facts coupled with the means of informing himself of the facts and willfully refrains from making inquiries, his intentional ignorance may amount to bad faith."
We consider the evidence on this point. The proceeds of the War Risk Insurance and bonus certificates constituting most of the deposit were payable to Scott as executor of Richard H. Sommers. The bank account was identical. This obviously proclaimed the nature of the Oleposit as a trust belonging to the estate of the decedent, Sommers. As we have shown, the bank accepted a check drawn by Scott as executor on that account in satisfaction of his personal note. All checks involved in this suit were so signed. The check was given the bank the same day the deposit was made and all the others within a week following. A small part ($175) only was used for bills, of the testator. As disclosed in the other appeal (Gibbs v. Peoples National Bank, supra), Scott was not only named executor of Sommers' will, but also as his residuary legatee. When he opened the bank account he showed the will to the officers of the bank and told them that he would personally get about $3,000 of the money. The cashier testified that Scott told him that everything bad been left to him, or that the biggest part of the money belonged to him; that he wanted to pay the bank what he owed it and that he had no other obligations to amount to anything. The cashier further testified that none of the officers had any occasion to inquire whether Scott was diverting the fund or not.
The presumption that the executor would apply the funds to their proper purposes ceased to exist when the bank accepted his check as executor in payment of his personal debt. Grace v. Corn Exchange Bank Trust Company,
In fairness to all parties, it should be said that there appears to have been no wilful wrong committed by any of them. Scott's interpretation of the will had been confirmed, he states, by the county judge. He believed there would be ample funds to satisfy the testator's creditors and the other devisees, and that he had a legal right to use the money.
The judgment is affirmed on the original appeal, and reversed on the cross-appeal.
Whole court sitting, except Judge Perry.