Being unable to concur in the majority opinion and finding the statement of facts therein inadequate from my point of view, I shall set forth what I deem to be the controlling facts — all of them, and then what seem to me to be the necessary conclusions of law with reference to such facts.
THE FACTS. This is an action at law to recover damages for an alleged conversion of personal property. The petition is in two counts: the first charges a conversion of $25,000 and the second that of $75,212.55. The plaintiff is the State Commissioner of Finance, in charge of the Holland Banking Company (hereinafter called the Holland Bank) at Springfield, Missouri, now in course of liquidation, and the defendant is the Continental National Bank (hereinafter referred to as the National Bank), located at Kansas City. One Ed L. Sanford was made a party defendant in the petition as originally filed, but the cause was dismissed as to him preceding the trial in the circuit *Page 20 court. The cause was tried to the court sitting as a jury; there was a judgment for defendant on the first count, and for the plaintiff on the second count for the full amount of the recovery therein prayed. From the judgment so rendered against it defendant prosecutes this appeal. As plaintiff abides the judgment against him, the proceedings relating to the first count of the petition are not here for review. The second count, omitting formal matters, is as follows:
"Plaintiff further states that from March 10, 1922, to January 15, 1924, the defendant Ed L. Sanford was the president of the Holland Banking Company and in active control of its business and affairs.
"Plaintiff further states that in the month of May, 1922, the defendant Ed L. Sanford was personally indebted to his co-defendant, the Continental National Bank, in the sum of $100,000, evidenced by his promissory note; that at said time the Holland Banking Company had $100,000 on deposit with the Continental National Bank for which it took credit on the books of the Holland Banking Company and received credit on the books of the said Continental National Bank; that at said time, without the knowledge and without the authority of the board of directors of the Holland Banking Company, and without any consideration moving to the Holland Banking Company, there was an understanding and agreement between the defendant Ed L. Sanford and his co-defendant the Continental National Bank that the said deposit of the Holland Banking Company with the Continental National Bank would be maintained equal to the indebtedness of Ed L. Sanford and could be applied in payment of Ed L. Sanford's said personal indebtedness. . . .
"Plaintiff further states that in consummation of said wrongful agreement and plan, the said Continental National Bank and Ed L. Sanford did on or about the 17th day of October, 1922, take and convert $75,212.55 which belonged to the Holland Banking Company and applied the same upon the indebtedness of said Ed L. Sanford to the Continental National Bank, with actual knowledge on their part that the same was done without authority of the board of directors of the Holland Banking Company, without authority of law, without any consideration passing to the Holland Banking Company, and with full knowledge of the wrongful taking of the Holland Banking Company's property and credit, to pay the personal indebtedness owing by said Ed L. Sanford to the Continental National Bank, all to the damage of the Holland Banking Company in the sum of $75,212.55 and interest at six per cent from October 17, 1922, to date for the unlawful detention thereof.
"Plaintiff further states that it has demanded a restitution of said amount and defendant has failed and refused to make the same. *Page 21 Wherefore, plaintiff prays judgment for $75,212.55 and interest thereon at six per cent per annum from October 17, 1922, to date, and for costs in this behalf expended."
The answer, in addition to a general denial, alleges that the "deposit credit" was set up on the books of defendant pursuant to a special agreement by virtue of which the deposit could be applied to the satisfaction of Sanford's note whenever defendant so desired, and that said note was the only consideration moving to defendant for the setting up of the credit. Certain matters of estoppel were also pleaded.
The reply is in effect a general denial of the new matter pleaded in the answer.
There is not much controversy as to the facts. Where the evidence discloses conflict, the facts as found by the trial court will be accepted for the purpose of the statement which is to follow.
On and shortly prior to April 9, 1921, the Holland Bank had a capital stock of $250,000, divided into 2500 shares of the par value of $100 each. It had a board of five directors, each of whom was also an active officer of the corporation. E.M. Ferguson was president, J.L. Hine vice-president, and C.E. Randall cashier. The other two directors were Ed L. Sanford and ____ Mitchell. The record is not clear as to their official positions, but apparently Sanford was a vice-president and Mitchell an assistant cashier. Sanford owned a majority of the stock, and dominated the management of the bank; Ferguson had a substantial stock-holding interest; the others owned no stock, but five shares had been transferred to each to qualify him as a director.
At some time within the period just mentioned an agreement was entered into by and between Sanford of the one part and Hine and Randall of the other, whereby Sanford was to sell and transfer to Hine and Randall 1300 shares of the capital stock of the Holland Bank for the sum of $308,000. Thereupon the latter two set about to secure the funds with which to pay for the stock — "to finance the deal." Pursuant to that purpose they went to Kansas City and applied to the National Bank for a loan to them personally of $100,000. The negotiations with respect to the matter were had between Hine and Randall on the one side and J.F. Meade, president of the National Bank, on the other. As a result of the negotiations an agreement was reached to the following effect: The National Bank would loan to Hine and Randall $100,000; they would execute a note for that sum payable on demand, and in connection therewith pledge 674 shares of the Holland Bank as security for its payment; they would pay interest monthly on the sum loaned at the rate of six per cent per annum; the proceeds of the loan would be deposited with the National Bank to the credit of the Holland Bank; the deposits *Page 22 under the account so opened would never be permitted to fall below $100,000; to the extent of $100,000 the deposit would not be subject to check or withdrawal; it could be applied by the National Bank to the payment and discharge of the note at any time it so desired; the National Bank would pay to the Holland Bank interest on the general balance from time to time in accordance with the Kansas City Clearing House rules; and a letter would be written by an officer of the Holland Bank to the National Bank confirming the provisions that the deposit would not be subject to check or withdrawal and could be applied at any time to the discharge of the note at the election of the National Bank. After concluding the agreement just mentioned (on April 9, 1921), Hine and Randall returned to Springfield and within a day or two thereafter mailed the National Bank their note for $100,000 with collateral agreement attached, pledging 674 shares of the Holland Bank as security. On April 12, the following letter was sent to the National Bank:
"Holland Banking Company, "Springfield, Missouri, April 12, 1921.
"MR. J.F. MEADE, President, "Continental National Bank, "Kansas City, Missouri.
"Dear Sir:
"Confirming our conversation, we hereby authorize you to charge our account for note for $100,000 signed by me and Mr. Hine, secured by 674 shares of Holland Banking Company stock, any time such note is unsatisfactory to you.
"Will forward you statement at an early date.
"Very truly yours, "C.E. RANDALL, Cash."
Following these transactions a credit of $100,000 in favor of the Holland Bank was set up on the books of the National Bank, and the Holland Bank took a like credit on its own books.
Hine and Randall next obtained from the Republic National Bank of St. Louis a loan of $100,000 on essentially the same terms and conditions as that gotten from the National Bank. A credit in favor of the Holland Bank for that amount was set up on the books of the Republic National Bank and a corresponding credit was entered on the Holland Bank's books. After securing these credits in favor of the Holland Bank, aggregating $200,000, Hine and Randall then put in that bank personally secured notes sufficient in amount to make up the balance of the $308,000 which they were to pay for Sanford's stock. After thus increasing the assets of the Holland Bank to the extent of $308,000 in the manner and form just detailed, Hine and Randall proceeded to pay Sanford for his stock. This they did by surrendering to him obligations to the bank in excess of $250,000 *Page 23 on which he was either primarily or secondarily liable, and by placing to his credit on the books of the bank the sum of $54,000 subject to his personal check.
Randall testified that, when he and Hine opened negotiations with the National Bank for the $100,000 loan, they told Meade they were borrowing the money for the purpose of buying Sanford's stock and securing the control of the Holland Bank. Hine testified:
"Well, we outlined the deal to him in its detail and told him our desire of borrowing $100,000 from his bank and we hoped to do the same thing in St. Louis; outlined in general the deal we had made with Mr. Sanford and what our idea of paying for it was. . . . We told him what our deal was with Mr. Sanford and we wanted to borrow $100,000 from his bank and further outlined our plan of paying for the balance of the consideration for the total purchase price." The trial court found the facts to be in accordance with this testimony.
The Hine and Randall note was renewed by them two or three times; they paid the interest on it monthly according to their agreement; and the National Bank credited the Holland Bank's account periodically with interest in accordance with the Clearing House rules. The account, however, was inactive. The Holland Bank made but few deposits for it and apparently drew against it only in emergencies; it occasionally fell slightly below the $100,000 mark, but when that occurred it was immediately brought back by additional deposits to the contract requirement. On one such occasion the following letter was written by Randall as cashier of the Holland Bank:
"Holland Banking Company, "Springfield, Missouri, "November 12, 1921.
"MR. J.C. WILLIAMS, Vice President, "Continental National Bank, "Kansas City, Missouri.
"Dear Joe:
"Herewith note for $100,000 duly signed by Hine and myself.
"I notice that our account with you dropped to $93,000 and we are to-day sending you enough to make it $100,000. I don't know what has been running it down, but we are building it up again to the required figures.
"Very truly yours, "C.E. RANDALL, "Cashier."
In February, 1922, Sanford bought Hine's and Randall's stock and again went into the control of the Holland Bank. Hine retired at once, but Randall continued as cashier until the following September. As a part of the consideration for the purchase of the stock *Page 24 Sanford assumed the obligation to pay the Hine and Randall note to the National Bank. Pursuant to an understanding had with that bank, his note was substituted for theirs, subject to the same terms and conditions. At the time of the substitution and in connection with the understanding then had, the cashier of the Holland Bank wrote the National Bank the following letter:
"Holland Banking Company, "Springfield, Missouri, May 1, 1922.
"Continental National Bank, "Kansas City, Missouri.
"Gentlemen:
"You will find herewith enclosed notes of $100,000 dated May 1st, payable on demand, signed by E.L. Sanford and secured by 800 shares of stock in the Holland Banking Company.
"This is your authority to charge the note to our account any time you so desire.
"Yours very truly, "C.E. RANDALL, Cashier."
About the first of September, 1922, the National Bank began pressing Sanford for the payment of his note. On September 8th he remitted $25,000 by draft on a Chicago bank: no further payments being made by him, the National Bank, on October 17, 1922, charged the Holland Bank's account with $75,212.55, the balance due on the note, and then mailed the note to Sanford.
No protest or complaint of any kind was ever made by the Holland Bank or any of its officials with respect to the charging of that bank's account by the National Bank with the balance due on the Sanford note. The Holland Bank closed its doors and was taken in charge by the State Commissioner of Finance, for liquidation, on the 15th day of January, 1924. This suit was commenced by him on the 19th day of August, 1926.
When Sanford went out of the Holland Bank, following the sale of his stock to Hine and Randall, one Wright was made a director in his place: and when Hine and Randall retired in 1922, their places as directors were filled by Sanford and one Rathbone. Neither Wright nor Rathbone owned any stock in fact. As all of the directors were at all times in the active management of the bank's affairs, there were but few, if any, formal meetings of the board of directors as such. Ferguson testified that the special agreement between the National Bank and Hine and Randall, and later between that bank and Sanford, with reference to the deposit account of the Holland Bank, was never brought to the attention of the board of directors of the latter bank, and that he had no personal knowledge of such agreement until after the Holland Bank closed. Wright and Rathbone testified to the same effect. *Page 25
The chief contention of the appellant, and one that is dispositive of the other questions raised by it, is that the evidence as a whole failed to make a case for plaintiff, and for that reason defendant's demurrer to the evidence offered at the close of the case should have been sustained.
CONCLUSIONS OF LAW. As stated, this is an action in the nature of trover for the alleged conversion of personal property. No question is raised with respect to the pleadings or as to the appropriateness of the remedy invoked with reference to the facts alleged. The gravamen of the charges contained in the petition is that the defendant did certain acts which were inimical to or in contravention of the Holland Bank's rights of property in and to the credit for $100,000 or the funds represented by the credit, appearing on the defendant's books in favor of the Holland Bank. What were the property rights so contravened? It is entirely clear that when the deposit credit was first set up, and before any action was taken with reference thereto by the Holland Bank, that bank had no right, title or interest whatever in or to the credit or the funds represented by it. Whatever right or interest it subsequently acquired was derived through the operation of the contract made with the defendant by Hine and Randall. The nature of that contract and the effectiveness of the obligations assumed under it are the first matters requiring consideration.
The deposit was made by Hine and Randall: it was that of their own personal funds. The essence of the contract, with respect to the deposit, was that it would not be subject to check or withdrawal, but would be subject at all times to be applied to the payment and discharge of the Hine and Randall note, at the election of the defendant bank. This contract, notwithstanding that the deposit was received in the name of the Holland Bank, was clearly valid and binding as to Hine and Randall. "A bank deposit is subject to any agreement which the depositor and the banker may make as to it, so long as the rights of third parties are not injuriously affected." [2 Michie on Banks and Banking, sec. 129 (3), p. 925.]
It is said in a memorandum opinion filed by the trial court that the deposit contract entered into between the defendant and Hine and Randall was not made for the benefit of the Holland Bank or in its behalf. If by that it is meant that Hine and Randall in making the contract were acting for themselves and not as agents of the Holland Bank, it is unquestionably true. The contract as originally made was between the defendant and Hine and Randall in their individual capacities, and not as representatives of the Holland Bank. Notwithstanding, under the terms of the contract the deposit was placed to the credit of the Holland Bank, subject to the conditions heretofore mentioned, and defendant had agreed with Hine and Randall *Page 26 that it would pay to the Holland Bank interest on the deposit in accordance with clearing house rules. Whether such credit or such interest payments would be beneficial to it was for the Holland Bank to decide. It was in no way obligated by what Hine and Randall had done, and had not parted with a dollar of its assets. It could accept the ostensible benefits of the contract, or reject them, just as it chose. But if it did accept the credit, it took it with all of the contract conditions with which it was burdened. This is elementary. [St. Louis v. Davidson,102 Mo. 149, 14 S.W. 825; Platt v. Francis, 247 Mo. 296, 152 S.W. 332; Cantley, Comr. v. Drainage District, 2 S.W.2d 607; Aldrich v. Bank, 176 U.S. 618.] But for the abuse subsequently made of the credit by the Holland Bank's officers the foregoing propositions would be regarded as indisputable. I will deal with that phase of the matter later on.
As stated, the Holland Bank with reference to the contract of deposit, was a stranger to both the contract and the consideration. Its right to the deposit being entirely derivative is to be measured by the terms of the contract. But it is said that at the time it accepted the provisions with reference to the deposit it was ignorant of the limitations and conditions attached thereto, that by reason of such ignorance it was misled to its hurt, and that therefore such conditions and limitations were not binding upon it. If it was so misled it was because of its own laches; it was its duty to have advised itself as to all the terms of the contract before accepting and acting upon it; the very nature of the transaction itself put it upon inquiry. Certainly the defendant did nothing to mislead it: on the contrary the defendant required the Holland Bank to make formal acknowledgment by letter that the deposit could not be withdrawn, but must remain subject to appropriation to the payment of the Hine and Randall note, if and when the defendant so elected. The fact that such acknowledgment was not made by formal resolution of the board of directors, or that a majority of the directors were in ignorance of the matters pertaining to it, is of no consequence. While Randall was negotiating for the $100,000 loan, he was just Randall: when he wrote the letter just referred to on the Bank's letterhead and signed it as cashier, he was representing the Holland Bank, notwithstanding his personal interest in the transaction. [Bartlett v. McAllister,289 S.W. 814; Kegan v. Park Bank, 8 S.W.2d 858.] The Holland Bank was therefore chargeable as a matter of law with knowledge of the contract conditions under which the deposit was made. In addition to that, Meade, the president of the defendant bank, had every reason to believe that the responsible management of the bank did in fact have such knowledge. There is nothing in the evidence which tends in any way to impugn his good faith in that respect. *Page 27
If the conclusions thus far reached are sound, the Holland Bank, on April 12, 1921 (the date of the first letter written by Randall as cashier), became a depositor of the defendant bank. The deposit, however, was subject to contract conditions and limitations with respect to which the depositor was as a matter of law fully cognizant. It was therefore bound by such conditions and limitations, unless the rights of the parties were affected by the fact now to be considered. That fact is that Hine and Randall told Meade pending their negotiations with him that it was their purpose to use the deposit credit to be set up in favor of the Holland Bank as a cover under which to withdraw from the assets of that bank an equal amount of Sanford's paper to be used by them in paying Sanford for his stock. It is said that this knowledge on the part of Meade as to the purpose of Hine and Randall in having the credit set up operated, as soon as that purpose was carried out, to convert the credit into an absolute and unconditional one. Under what principle of law it would so operate I am at a loss to understand. The contract in its entirety was one which the defendant had an undoubted right to make in the lawful pursuit of its own business; that right was in no way affected by the motive or purpose that was entertained by the other party in negotiating it and in which the defendant did not share. The use that was to be made of the credit was not within the terms of the contract or within any of its implications. What use would be made of the credit by the Holland Bank or its officers was for it or them to decide: it was of no concern whatever to the defendant. Neither the relation of bank and depositor, nor the special agreement under which the deposit in question was made, constituted the defendant guardian or trustee with reference to any of the Holland Bank's affairs. "A bank is not made to exercise supervisory functions over its depositors. It is not sponsor for all its depositors, although it may know the character of their business. Its relations to its depositors are those of debtor; and, generally, in receiving and paying out money on the checks of its depositors, it discharges the full measure of its obligations." [2 Michie on Banks and Banking, sec. 129 (2), p. 925.] The Holland Bank might, or might not, permit Hine and Randall to withdraw the Sanford paper on the strength of the deposit; whether it would or not was for it to determine: it might consider it advantageous to get rid of Sanford's paper, even by the use of that method. But in any event it was of no consequence to the defendant one way or another: it was under no obligation whatever with respect to the matter, and had it assumed the right to interpose it would have been a mere intermeddler. [Rankin, Receiver, v. National Bank of Kansas City,208 U.S. 541.]
Mere knowledge by one of the parties to a contract of the other's intention to use the subject-matter for an improper or unlawful purpose *Page 28 does not render the contract as made unenforcible. "The mere fact that a contract, the consideration and performance of which are lawful, incidentally assists one in evading a law is no bar to its enforcement." [State v. Capital City Bank, 53 A.L.R. (New Mexico), 1356, 1363, and cases cited at length in note; see also Michael v. Bacon, 49 Mo. 474; Spragg v. Rooney, 82 Mo. 493.]
It is not contended that the substitution of Sanford's note for that of Hine and Randall in any way affected the rights of the parties to the fund represented by the deposit credit as they had theretofore existed. The Holland Bank's right to that fund was never absolute and unconditional: it was at all times contingent upon the repayment to defendant of the $100,000 loan by those who had assumed the primary obligation to do so. The State Commissioner of Finance as trustee for the Holland Bank stands in its shoes: he could acquire no different or greater right to the fund in controversy than the bank itself had.
Finally, and by way of recapitulation, — this is not a suit for debt, or for damages growing out of fraud; it is an action for the alleged conversion of a bank credit; the Holland Bank'sright or title to the credit in question accrued to it solely through the contract entered into between the National Bank and Hine and Randall, and not otherwise; the Holland Bank therefore had such title as that contract invested it with, and no other; the appropriation of the credit to the discharge of the note through which it was obtained pursuant to the terms of thecontract could not have constituted a conversion.
For the reasons hereinbefore indicated I am of the opinion that the judgment of the circuit court, as to the second count of the petition, should be reversed. White, C.J., and Walker, J., concur.