Englar v. Offutt

Alvey, C. J., delivered the opinion of the Court, Prior to the 21st of May, 1883, and down to the 1st of January, 1886, John P. Shriner was a merchant, and manufacturer of harness, in the City of Baltimore, and he carried on the business under the name and style of John P. Shriner & Co., though he was the only person interested in the business. On the 21st of May, 1883, he was appointed by the Orphans’ Court of Carroll County, guardian of Mary and John Englar, infants, and received into his possession, as belonging to his wards, the sum of $10,846.25. Of this sum there was deposited by Shriner, on the day of its receipt by him, that is to say, the 21st of May, 1883, in the Howard Bank of Baltimore, to his own credit, in an account kept in the name of John P. Shriner & Co., the sum of $10,238.20. As against this and all other credits in such account, amounting in the aggregate, between the date just mentioned and the 28th of August, 1883, to the sum of $28,804.13, John P. Shriner checked and otherwise drew out, as he needed the money, various sums, amounting in the aggregate to the sum of $28,’755.64; so that, at the date last mentioned, there remained in bank to his credit on this account only the small balance of $48.49.

The money appears to have been drawn out of bank for various purposes; some of it to be loaned out; a considerable portion of it to take up outstanding paper payable by Shriner, and some of it to pay bills of merchandise, &c. Shriner also kept an account in the Manufacturers’ National Bank of Baltimore, during the same time of the account in the Howard Bank, but there is nothing to show that there was any specific sum belonging to the Englar trust fund deposited to his credit in that account. There were a great many deposits made to his credit in that account, but there is nothing to indicate that any portion of them belonged ⁸³ to a trust; and. the checks against the credits in that accotmt, down to the 1st of Sept., 1883, had reduced the balance in favor of Shriner to the small sum of $34.01. For some time immediately preceding the 31st of December, 1885, Edward C. Shriner, a younger brother of John P., had been a clerk in his brother's store; and on the 31st of December, 1885, the brothers •entered into the following agreement: “That John P. Shriner, owning the business of John P. Shriner & Company, hereby agrees to associate with him in said business the said Edward C. Shriner, upon the following terms and conditions: The said Edward C. Shriner is to receive for his services, to be rendered in said business, the annual salary of six hundred and twenty-four dollars, and is .to receive, in addition thereto, one-tenth part of the profits of said business as carried on in the City of Baltimore, or elsewhere, by said firm, after all expenses including the said salary, are paid and satisfied: John P. Shriner is to have the right alone to sign all checks, notes, &c., of said firm, and to conduct the business thereof as he shall think proper, and to the best interest of both, as he has heretofore carried on said business.

And the said Edward C. Shriner, in consideration of said salary and said interest in said firm, hereby agrees to devote his whole time and attention to said business. Witness our hands and- seals." By this agreement, and the clear intention of the parties thereto, Edward C. Shriner was made a partner with his brother in the business, with all the responsibilities of a partner to creditors and other third parties dealing with the firm. And being such partner, and interested in the discharge of partnership obligations, it was his right to require that all the partnership funds and effects be directly and regularly ⁸⁴ applied to the payment of partnership debts; and it is only after all partnership debts are paid that the separate debts of the partners can be paid from partnership assets. It was in respect to these rights, and this order of payment of debts, that the general assignment for the benefit of creditors, executed by the partners on the 15th of November, 1886, made provision.

To this order of payment the creditors of the firm of John P. Shriner & Co. are, by the terms of the deed of assignment, entitled to insist, unless some superior right be shown. It appears that the trustee, to whom the general assignment was made, sold at private sale all the partnership property and assets of every kind, for the sum of $9,5.00, and which sale was ratified by the Court. The trustee has in his. hands of this purchase money, the sum of $6,543.60, for distribution to those entitled to receive it.- In this state of casé, the appellants filed their petition, stating the facts finder which John P. Shriner received their money, and alleging that he applied the same to the use of the firm of John P. Shriner & Co.; and that “the said firm received said money with full knowledge as to .its character, and as to the violation of his trust by the said John P. Shriner, guardian as aforesaid, and used said money in the business of said firm, converting the same into stock and material used in the said business;” and that “while still holding said money and using the same in their business as aforesaid, the members of said firm, including the said JohnP. Shriner,” made the general assignment for the benefit of creditors.

The petition then proceeds to allege the amount of money, realized from the sale of the partnership effects, remaining in the hands of the trustee; and after alleging the amount due them from their guardian, the appellants ⁸⁵ “charge that they are entitled to priority over other creditors of the firm of John P. Shriner & Co., in the distribution of the net proceeds of the sale of the stock of said firm,” now subject to the control of the Court for distribution. The matter of the petition was referred to the auditor of the Court, with power to take testimony, and to state an account. Testimony was taken, and an account stated; but the auditor finding nothing in the evidence, according to his view, to justify the application of the fund to the claim of the appellants, he distributed, the entire fund to the claims of the partnership creditors. To this account the appellants excej)ted; but their exceptions were overruled and the account ratified, and the petition of the appellants was dismissed.

It is from that order that this appeal is taken. The appeal presents two questions : 1st, whether the trust fund belonging to the appellants is traceable under the facts of this case, so as to be identified with reasonable certainty, and shown to be the fund that is ordered to be distributed to the general creditors of the partnership, under the deed of-assignment? and if not, 2d, whether the appellants are entitled as creditors of the partnership to share in the distribution of the fund? . « 1. The principle upon which trust funds may be traced, when attempted to be misapplied, or where they have been converted into other property, or become mixed with other funds belonging to the trustee or fiduciary, is a very plain one, and all the difficulty that is found to exist, is in matters of fact, and in identifying the fund. So long as a trust fund can be traced the Court will always attribute the ownership thereof to the cestui que trust, and will not allow the right to be defeated, by the wrongful act of ⁸⁶ tlie trustee or fiduciary iu mixing or confusing the trust fund with funds of his own, or even those of a third party.

The true owner of a fund traced to the possession of another has a right to have it restored, not as a debt due and owing, but because it is his property wrongfully withheld from him. And it can make no manner of difference, whether the fund be traced into a bank account, the possession of an individual, or into the hands of a firm composed of many individuals, if the essential facts are shown by which the identification of the fund can be established, and no superior rights of innocent third parties have intervened. The doctrine has been recognized and applied in Courts of equity from a very early period ; but it has recently undergone full and elaborate discussion, with ample illustration, both in the Etiglish Court of Appeal, and the Supreme Court of the United States, where all the authorities have been reviewed. In the cases In re Hallett’s Estate, and Knatchbull vs. Hallett, 13 Ch.

Div., 696, 753, it was held by the Court of Appeal, that where money had been received by a person in a fidu-. ciary character, though not as technical trustee, and had paid it to his account at his