Opinion
No. 33384.
November 14, 1938. Suggestion of Error Overruled January 9, 1939.
1. GUARDIAN AND WARD.
A guardian can have no divided interest, but the wards in a guardianship come first.
2. GUARDIAN AND WARD.
Whenever a guardian finds himself so situated that, because of an adverse interest, either personally or as trustee or agent for others, he cannot in vital particulars give undivided allegiance to his wards, his proper course is to forthwith resign his guardianship, turning over to his successor all the ward's estate and furnishing all the material information which he has which bears on the safety and preservation of the estate, and, failing to take such course, he is liable for all foreseeable proximate consequences.
3. GUARDIAN AND WARD.
A guardian of minor wards who had obtained authority to deposit guardianship funds in bank of which he was cashier was liable to estate for loss resulting from failure to withdraw funds from bank prior to failure of bank when he had knowledge of danger to deposits, as against contention that failure to withdraw guardianship funds was excused because withdrawal would have constituted breach of duty to other depositors of bank as cashier.
APPEAL from the chancery court of Winston county; HON. T.P. GUYTON, Chancellor.
E.M. Livingston and Hathorn Davis, all of Louisville, for appellant.
The guardian was not directed to invest the funds at his discretion using sound business judgment, but was directed by the Chancellor in vacation to invest the funds by lending them to the Louisville Home Bank, or by placing them in the Louisville Home Bank on savings account to draw interest at the rate of 4% per annum. This order of the court gave the guardian no discretion, but was mandatory on him and he had nothing left to do except follow the order of the Chancellor and so invest the funds and the loan was so made in strict compliance with the order of the court.
Section 1885, Code of 1930.
There is no testimony in this record to show that the bank was insolvent in May of 1930, and no evidence in the record to show that Mr. Liddell had any reason to believe the bank was insolvent until the day it closed. The reserve of the bank had gotten low it is true, and this is admitted by Mr. Liddell, but this was due solely to the fact of the unprecedented depression in the country and the inability of the bank to realize money on its assets. The court, we are sure, will take judicial knowledge of the fact that during the years of 1930 to 1933 this country went through the worst depression in history. Banks were failing throughout the United States and some of the best banks in Mississippi were forced to close their doors due to the financial condition of the country and due to the fact that these banks were unable to realize money on their securities and assets. The Louisville Home Bank was no exception, but a bank that survived this depression and withstood its ravages it is the exception and was extremely fortunate. The bankers throughout Mississippi were at that time putting forth every human effort to keep their institutions open, to serve the public and prevent a disaster to their institutions and depositors. Mr. Liddell and the other directors of the Louisville Home Bank were doing the same thing that bankers throughout the nation were doing at this time.
The chancellor took the position that in the face of these conditions Mr. Liddell should have filed a petition in the court reporting to the court the condition and asking that he be permitted to withdraw the funds from the bank and make some other investment. Can it be said that such a duty rests on the cashier of a bank? Had he filed such a report to the chancellor at any time from the date the funds were invested to the date the bank closed its doors he would have been unfaithful to the trust the depositors of his bank had placed in him, and had such report been made and filed with the records in this case it would have been only a few hours thereafter until it would have been generally known through Winston county that the cashier of the Louisville Home Bank was not willing to risk the bank of which he was cashier to handle funds in his custody. This would have wrecked the bank within a few hours and would have branded Mr. Liddell as a man unworthy of confidence and as a traitor to the directors of the bank and the depositors of the bank. It would have also subjected him to severe penalties under the law for being instrumental in closing his bank.
It is a general rule applicable to all persons standing in the relation of trustee whether they be receivers, guardians, executors or administrators or trustees of any description that so long as they keep themselves strictly within the line of duty and exercise reasonable care and diligence they cannot be made responsible for any loss or depreciation in the fund intrusted to them; but if they do not strictly pursue that line and a loss ensue they are liable to make that loss good although such loss may have been wholly unexpected.
Coffin v. Bramlett, 42 Miss. 194, 97 Am. Dec. 449.
We submit that Liddell acted in this case strictly within the line of duty.
28 C.J. 1145, sec. 244; Cohn v. Winslow, 76 So. 264.
It is our contention and our understanding of the law in this state that negligence is never presumed in cases of this nature and must be alleged and proved in order that the negligence may be actionable.
In re Guardianship of Horne, 173 So. 660; 65 C.J. 795, par. 672.
The case In Re Adams Guardianship, 152 So. 836, is in favor of appellant rather than being an authority adjudicating a theory of law which condemns him. In the Adams case the deposit in the bank was made prior to receiving or applying for any order of the court directing the investment to so deposit the funds. In the Adams case, also, the certificate of deposit was long past due and any disposition could have been lawfully made therewith at its maturity; and the deposit made in the Adams case was made while the Bank Depositor's Guaranty Law had been suspended prior to making the deposit and the court designated the bank after such law had been suspended; the deposit had not yet matured at the time the bank failed, and could not have been withdrawn without sixty (60) days notice as required by order of the Banking Department.
There is not one line of testimony to support the Chancellor's finding that it was manifestly contemplated, both by the guardian and by the court that these funds could be withdrawn in whole or in part at any time. If this had been true, what was the necessity of having the Chancellor's order designating the deposit under Section 1885 of the Code of 1930?
Can this appellant now be condemned and held liable for some $3500.00 because he exercised his best judgment? The law only requires a guardian to use his best judgment in investment of funds, and the law only requires bank officers and directors to use their best judgment in the handling of a bank and in lending its funds. This is what Mr. Liddell did, as shown by the testimony, and no man could have done more.
W.A. Strong, Jr., of Louisville, for appellee.
We submit that Mr. Liddell as cashier and director of the Louisville Home Bank is charged with the knowledge of its affairs and of the general reputation of its debtors as to solvency or insolvency.
McCraine v. State, 130 So. 295; Ellis v. H.P. Gates Co., 60 So. 649; Boyd v. Appelwhite, 84 So. 16; Early v. U.S.F. G., 176 So. 720.
Of course, if Mr. Liddell knew at the time he placed the money in the bank, that the bank was in a dangerous condition, the order of the court to place it in the bank would not be of any benefit to him, for the reason that it would be an order procured through fraud and therefore void.
Union Chevrolet Co. v. Arrington, 138 So. 593; Pan-American Life Ins. Co. v. Crymes, 153 So. 803; Reily v. Crymes, 168 So. 267.
With reference to the duty of the guardian to take some steps to protect his wards' money after realizing that said bank was in a failing condition, we would respectfully direct the court's attention to the rule of law announced in "Perry on Trusts," sec. 443, wherein it is stated that it is the duty of a trustee to withdraw the money from the bank upon the slightest indication of danger or loss.
The rules which regulate the conduct of guardians are few and simple. The office is one of trust and confidence, the duties of which are to be performed solely with an eye to the advancement of the ward's interest. A guardian having thus performed his trust ought to be liberally compensated. If, however, it shall appear that he has abused the confidence reposed in him by the law, and has looked to his own private gain, instead of to the true interest of his ward, he is entitled to no special favor and ought to be held to a strict showing according to the most rigid rules of law.
Heard v. Daniel, 26 Miss. 452; Brandau v. Greer, 48 So. 519; Ames v. Williams, 20 So. 876.
We think that the principles of law governing the case at bar were fully announced in the Adams case, 152 So. 836, there the guardian heard the bank was unsafe and was held guilty of negligence in not moving her ward's money. In the case at bar the guardian knew the bank was unsafe and dangerous which would certainly make him guilty of negligence.
Sections 3775, 3780 and 3818, Code of 1930.
Rodgers Prisock, of Louisville, for appellee.
The gentlemen who represent the appellant in this case in their very excellent brief seem to hold to the proposition that the defendant, Howard Liddell, had a greater duty to his bank to keep it a secret that his bank was in a failing condition than was his duty to his wards. We readily admit that the cashier of any bank has a duty to perform towards his bank which duty we do not excuse him from or in any wise state that he should not have performed and as a matter of fact we congratulate him on his loyalty towards the institution from which he received his daily bread: however, on the other hand, his duty towards his wards was a fixed legal duty and a fiduciary trust which he accepted and swore he would faithfully perform, and for that reason he should not have permitted his two duties to have come into conflict so that he would have been required to select which of the two trusts he would remain loyal to.
The guardian of minor wards was the absolute duty of reporting his trust to the Chancery Court and the burden is upon such guardian to prove to the court that he has faithfully carried out his trust.
21 Cyc., page 163; Bell v. Rudolph, 70 Miss. 234, 12 So. 53.
There can be no question, but what Mr. Liddell knew of the condition of the Louisville Home Bank. His wife went out and drew out by way of note her time deposit. Some of the bank tellers drew out their funds. And a great many people had written to the bank telling them of their financial condition and Mr. Liddell could not have possibly failed to have known that the bank was in a failing condition especially in view of the fact that he knew the bank was operating at a great loss and knew that the deposits were being withdrawn.
Does the court order protect a guardian although he knows that the security or account where the money is deposited is likely to be lost, under Section 1885, Mississippi Code of 1930? Under that section it appears that it is necessary for the guardian to apply to the court for direction as to the disposition of his wards' account and failing to have applied, the court simply directed him to deposit it in bank. As we see it, therefore, the court's order would not avail the defendant anything for two reasons: (1) Because the guardian knew after the order had been entered and at a sufficient time to have protected the estate of his wards that the funds were about to be lost in a bank failure; that he had the duty as guardian to protect this guardian's fund whenever it became apparent to him that said estate was in danger; that the burden of proof is on him to show that he did all required of him as a guardian and as a person in a fiduciary position to protect said funds. (2) For the reason that guardian did not comply with Section 1885, Mississippi Code of 1930, but simply states in his petition: "Your petitioner would further state to the court that as guardian of said minor's personal estate he is of the opinion that it will be to the best interest of said minors to place said money in the savings account of the Louisville Home Bank of Louisville, Mississippi, and draw 4% interest per annum in favor of his said ward," and this is not such a loan as is contemplated by said section, but is simply a deposit in a bank rather than to have retained said funds in his actual possession. The word "deposit" is used in the petition and nowhere is a loan contemplated.
Bailey v. Fitzgerald, 56 Miss. 578; 77 A.L.R. 511.
In the case of Adams Guardianship, 169 Miss. 20, 152 So. 836, the court speaking through Judge Griffith has finally put at rest this question: "Any rule that Chancellor's order authorizing guardian's previously unauthorized investment of ward's money is no protection to guardian would not apply to guardian's deposit of such money in reputable bank pending a reasonable time to find suitable investment" and ". . . where guardian was warned that bank was in failing condition at least three weeks before it closed . . . her failure to act promptly in accordance with changed conditions, made her liable for resulting loss, plus 6% interest less any legal expenditures for ward."
On May 10, 1930, appellant was the cashier of the Louisville Home Bank, and so continued until the bank closed its doors on January 6, 1931. Appellant was also the guardian of the Sullivan children, and had in his hands, as guardian, the sum of $3500 not presently needed. On a proper petition by him as guardian, he was authorized by the chancellor, on the date first aforesaid, to deposit the sum in said bank at four per cent interest, which was at once done. The subsequent developments, and certainly along about the fall of 1930, were such, according to the evidence, as to sufficiently warn appellant, as a diligent and prudent trustee, that the condition of the bank was such as to gravely endanger the said deposit; but he did nothing about it, and allowed the funds to remain until the final collapse of the bank as aforesaid.
The bank in liquidation subsequently paid about forty-two per cent to depositors, including these wards. The court removed appellant as guardian, and the successor guardian, by a proper proceeding, obtained a decree against appellant for the balance of the funds, on the ground that appellant had been negligent in allowing the estate of wards to be partially lost, from which decree this appeal has been prosecuted.
In addition to the chief argument that the evidence was not sufficient to support the finding by the court upon the issue of the endangered condition of the bank and of the trustee's knowledge of such condition, which argument, as we think, is not maintainable under this record, appellant presents, as an excuse for his silence and inaction, the assumption that he would have had to make application to the chancellor to withdraw the deposit from the bank, and that had he done so, this fact would have become known to the public as an evidence that the cashier was not willing to risk his own bank, and would have immediately precipitated its ruin, at a time while he and the directors were still hopeful and expectant that its difficulties could and would be met; and that thereby he would have been guilty of an even greater wrong than by taking the course he did.
The argument for appellant presents also for consideration that while he was guardian for these children, he was also at the same time, in his position as cashier, a trustee for every other depositor in his bank, with no more right to make a withdrawal to save these wards than he would to save any other depositor, and that to attempt to withdraw for all would mean an instant collapse as to all, with no probability that any of them would eventually receive any more than has been received by them under the course which he took.
The difficult and embarrassing position in which appellant found himself in the gloom of the dark days then lowering upon the country excites a natural sympathy, but it must be repeated, as has in one form or another so often heretofore been declared, that the wards in a guardianship come first — a guardian can have no divided interest. Brandau v. Greer, 95 Miss. 100, 48 So. 519, 21 Ann. Cas. 1118; Heard v. Daniel, 26 Miss. 451, 452, 455; 28 C.J. 1154. Whenever a guardian finds himself so situated that, because of an adverse interest, either personally or as a trustee or agent for others, he cannot in vital particulars give undivided allegiance to his wards, his proper course is forthwith to resign his guardianship, turning over to his successor all the wards' estate, and furnishing at the same time to his successor all the material information which he has which bears upon the safety and preservation of that estate. Failing to take that course, he must be held to all the foreseeable proximate consequences of such failure.
Affirmed.