Purnell v. Union Trust Co.

Pattison, J., delivered the opinion of the Court. J. Hurst Purnell, the husband of the appellant, Katherine K. Purnell, was, in 1931, and for a time prior thereto, in the real estate business in the city of Baltimore, trading under the name of' “J. Hurst Purnell, Inc.” He was president and active head of the company and owned nearly all of the stock. His wife was the owner of only a very few shares of the stock. The company owned some unimproved land in a development known as “Keswick,” which was subdivided into lots upon which houses were built with the view of selling them at a profit.

On the 2nd day of February, 1931, J. Hurst Purnell, Inc., borrowed from the appellee, Union Trust Company, $5,000, and gave to that company its promissory note for that amount, indorsed by J. Hurst Purnell individually, and assigned to it certain mortgages as collateral security therefor. On the 28th day of May, 1931, J. Hurst Purnell and wife borrowed of her brother, William G. Knapp, the sum of $5,000, and, to secure its payment, gave to him their interest bearing note containing a power to confess judgment thereon. J. Hurst Purnell, Inc., desired to increase its line of credit with the Union Trust Company, and on the 9th day of July, 1931, J. Hurst Purnell and Katherine K. Purnell, his wife, as required by the Union Trust Company, executed a paper writing in the nature of a guaranty, by which they agreed to indemnify the Union Trust Company against all loss it might suffer, to the extent of $22,000, in consequence of the credit granted by it to J. Hurst Purnell, Inc. ⁸⁷ Thereafter, on the 4th day of January, 1932, the note for $5,000, given by J. Hurst Purnell, Inc., to the trust company, heretofore mentioned, was renewed, with the individual indorsement of J. Hurst Purnell thereon; and on the 6th day of January, 1932, J. Hurst Purnell, Inc., borrowed the further sum of $17,000 from the Union Trust Company, and gave to the latter company its note for that amount, indorsed by J. Hurst Purnell individually. In December, 1931, J. Hurst Purnell had become sick, and as a result thereof was confined to his home.

While in that condition he found it necessary to borrow money to tide over his financial difficulties. He asked his brother-in-law, William G. Knapp, to go to the bank of the Union Trust Company, and ask Mr. W. Graham Boyce, its vice president, to call to see him at his, Mr. Purnell’s, home. This Mr. Knapp did, though Mr. Boyce did not call at the home of Mr. Purnell until the following month, January, 1932. At that time Mr. Purnell applied to the Union Trust Company, through Mr. Boyce, for a loan of $10,000, and offered him as collateral security a second mortgage of $10,000, following a first mortgage of $25,000, executed to the Safe Deposit & Trust Company upon No. 4314 St. Paul St., Baltimore, where he then resided, and owned by him and Mrs. Purnell; the cost thereof being $75,000.

This security was not satisfactory to Mr. Boyce and further security was required. Shortly thereafter, Mr. Boyce met William G. Knapp and his father at the Maryland Club, and there suggested to William G. Knapp that he should help his brother-in-law, Mr. Purnell. Mr. Knapp had a life insurance policy of $25,000, the cash value of which at that time was about $12,000. This he agreed to assign to the Union Trust Company as a further security for the loan of $10,000 to Mr. and Mrs. Purnell, and, on January 14th, 1932, the trust company loaned to Mr. and Mrs. Purnell $10,-000, secured by a second mortgage on their home, which was executed by them to his brother-in-law William G. Knapp, and by him assigned to the appellee, together ⁸⁸ with said policy of insurance on the life of William G. Knapp.

On February 8th, 1932, J. Hurst Purnell died. Mrs. Purnell was thereafter made president of J. Hurst Purnell, Inc., and took over its management. Robert Biggs remained counsel to the company, and also advised Mrs. Purnell in certain matters in connection with the settlement of her husband’s estate. Mrs. Purnell collected the sum of $26,280.33 upon certain life insurance policies held by her husband at the time of his death, in which she was the beneficiary.

This money she deposited in the Union Trust Company. $19,-954.20 of it she deposited in a savings account, and $6,326.11 in a checking account, in which she had previously deposited the $10,000 borrowed by herself and husband from the trust company, and secured by the mortgage executed to her brother and assigned by him to the Union Trust Company. After the death of Mr. Purnell, Mrs. Purnell, then the president of J. Hurst Purnell, Inc., and Mr. Biggs, counsel for that company, planned to erect some new dwellings on part of the unimproved land held by the company. To effect this end they got in touch with Robert A. Brady and his brother, builders, and a written agreement was entered into by them with the Purnell Company, by which the latter was to convey four lots of land to the former, trading as the Colonial Homes Company, subject to certain ground rents. By this agreement the Colonial Homes Company was to erect four dwellings on these lots for the company.

On June 14th, 1932, J. Hurst Purnell, Inc., leased the four lots to the Colonial Homes Company, and on the same day the Colonial Homes Company entered into an agreement with Mrs. Purnell, by which she agreed to advance, individually, to it, from time to time, money, not to exceed in the aggregate $14,000, to be used by the Colonial Homes Company in the building of the'f our houses, and, to secure her in the repayment of the amount so to be advanced, the Colonial Homes Company executed to her, individually, a construction mortgage for $14,000. ⁸⁹ The first payment of Mrs. Purnell to the Colonial Homes Company, pursuant to the agreement between her and that company, was $500, made on the 25th day of June, 1932, by a withdrawal of that amount from her savings account of $19,954.20, in the Union Trust Company. This payment was followed by other withdrawals from that account made by her from time to time, until the payments thereon, including the one made on the 14th day of November, 1932, of $350, aggregated $14,600. No explanation was given for the payment of the additional $600, when the mortgage amounted only to $14,000. After November 14th, 1932, Mrs. Purnell withdrew from her savings account, at three different times, the aggregate sum of $5,000, which was used for her own individual purposes; the amount of her account after such withdrawals being $1,276.18.

On December 18th, 1932, Robert Biggs became seriously ill and was confined to his home and thereafter did not return to his office, but died February 23rd, 1933. In December, 1932, Mr. Knapp asked Mrs. Purnell for a payment on account of the $5,000 note which he held and for the insurance policy assigned by him, which, as already stated, had a cash value of about $12,000. She was unable to pay him in cash, and, in lieu thereof, she, on February 6th, 1933, made a settlement with him by assigning to him the Colonial Homes Company mortgage of $14,000, which assignment was duly recorded on February 27th, 1933, and he returned to her the note of $5,000, given to him by her and her husband. On April 18th, 1933, Mr. Dunn, vice president of the trust company, demanded of Mrs. Purnell that she assign to his company the Colonial Homes mortgage which she had assigned to her brother on February 27th, 1933.

This, of course, she could not do because of the previous assignment of the mortgage to her brother, and thereafter Mrs. Purnell was not permitted to draw the balance of her account, $1,276.18. On June 19th, 1933, Mr. Knapp instituted, through J. Abner Sayler, his attorney, foreclosure proceedings upon ⁹⁰ the mortgage assigned to him by his sister. Mr. Sayler was appointed trustee, and he sold the property for $24,-000. An auditor’s account was thereafter stated allowing the sum of $15,239.94 to Mr. Knapp for his mortgage claim.

Of this amount, $14,000 was due on the mortgage, $241.48 for cash advanced by the, mortgagee in the payment of ground rent, and the balance, $998.66, as interest. Thereafter, demand was made upon Mr. Knapp b.y the Union Trust Company for the amount of money allowed him by the auditor. Upon Mr. Knapp’s refusal to recognize the claim of the trust company, the latter filed its bill of complaint in this case. In it, it alleged, in addition to the facts above stated: “That the proceeds of said insurance policies,” $19,954.24, were deposited in a savings account with the Union Trust Company “pursuant to an understanding and agreement between” the Union Trust Company “and Katherine K. Purnell, or her duly authorized agent or attorney, to protect” the trust company “on account of her guaranty of the notes of the said J. Hurst Purnell Company, Incorporated.” “That the said fund remained on deposit until the month of June, 1933, as an impounded fund for the purpose aforesaid, and the said defendant, Katherine K. Purnell, was not permitted to withdraw any part of the deposit while the note aforesaid remained unpaid.” “That during the month of June, 1932, the said Katherine K. Purnell, or her duly authorized agent or attorney, represented to this complainant that this property, which was unimproved, was the principal asset of the corporation, and unsalable as such, but that if it, or a portion of it, were improved, the property could be disposed of at a profit, and that if the complainant would allow the said defendant, Katherine K. Purnell, to use the money then standing to ⁹¹ her credit in the impounded savings account, she could finance the development of a portion of this property, and that if the complainant consented, she would withdraw from said account from time to time only such sums as were needed in said construction, and would protect all such sums by a first mortgage on this property, which mortgage would be held by her for the benefit of” the defendant, or be assigned to it, and that after the completion of the improvements, the property would be refinanced and the money withdrawn from said account would be returned, to be applied in extinguishment of her indebtedness to the complainant on account of her guaranty of the notes of said corporation. “That relying on the representations, promises and understandings aforementioned, the complainant agreed to permit the defendant, Katherine K; Purnell, to make withdrawals from said impounded savings account for the purposes aforesaid, and the said defendant, Katherine K. Purnell, did, on or about June 26th, 1932, and from time to time thereafter, make withdrawals of substantially all the money theretofore held in said impounded savings account, pursuant to said representations, promises and understanding. “That thereafter your complainant requested the said Katherine K. Purnell to assign to it” the mortgage executed by the Colonial Homes Company to her, “which she held for the complainant, pursuant to the understanding and agreement, hereinabove referred to, but the said Katherine K. Purnell has refused to do so.

The prayers of the bill are: First. That the court decree that the trust company is the owner of the mortgage from the Colonial Homes Company to Mrs. Purnell, as ⁹² signed by her to William G. Knapp and the debt secured thereby, as well as the proceeds of the sale of the mortgaged property to an amount sufficient to satisfy the mortgage claim. Second. That J. Abner Sayler, trustee, be enjoined and prohibited by order of the court from paying or distributing any proceeds of sale to William G. Knapp or Katherine K. Purnell in satisfaction of said mortgage claim.

Third. That the court direct the trustee to pay and distribute to the trust company, out of the proceeds of sale under the mortgaged property, an amount sufficient to satisfy the said mortgage claim. Fourth. That the court direct William G. Knapp to enter the decree in the foreclosure proceedings to the use of the Union Trust Company, etc. Each of the defendants answered the bill.

Mrs. Purnell, in her answer, denied that the proceeds of the policy were deposited by her pursuant to any understanding or agreement made by her, or any agent or attorney of her, with the Union Trust Company, by which it was agreed or understood that the deposit was made to protect the company on account of the guaranty of the notes of the J. Hurst Purnell, Inc. She not only denied that she made any such arrangement, as alleged in the bill, but she further denied that she ever authorized any agent or attorney to make any such arrangement on her behalf. She also denied that the funds so deposited were in any way impounded for the purpose of so protecting said plaintiff, or that she was not permitted to withdraw any part of said deposit from said plaintiff, or was ever told that she could not withdraw the same until the early part of the year of 1933, when she had withdrawn almost the en.tire amount of the deposit. In her answer, she averred that the deposit was made by her without any solicitation on the part of the plaintiff, or any agent or servant thereof, and that the only reason for so depositing it with the ⁹³ plaintiff was because she felt that the plaintiff bank at that time was solvent and a safe place for depositing money, and that she would be permitted to withdraw the same at any time she so desired. She further averred in her answer that the mortgage of $14,000, assigned to William G. Knapp, was assigned to him for a valuable consideration, and that the demand upon her to assign the mortgage to the trust company was made several months after the assignment of it to her brother.

The defendant William G. Knapp, in his answer, denied the allegation in the bill that at the time of the assignment of the mortgage to him he had full knowledge of the plaintiff’s right to it, and the company’s demand that it be assigned to it. He further averred that he gave to his sister a valuable consideration for the mortgage, and he held the same as a bona fide purchaser for value, without any notice of any claim of the plaintiff in and to said mortgage. At the conclusion of the evidence, heard upon the bill and answers, the court decreed that the plaintiff, “the Union Trust Company is entitled to the sum of $14,998.66 out of the fund of $15,239.94, now held by J. Abner Sayler, Trustee,” it being a part of the proceeds from the sale of the property therein, under the mortgage foreclosure proceedings, “which by the account of the auditor * * * was awarded to William G. Knapp, assignee of said mortgage,” and the court further decreed that the trustee be enjoined from paying or distributing any portion of said sum either to William G. Knapp, the assignee, or to Katherine K. Purnell, but directed that he pay the same to the Union Trust Company. It is from that decree that the appeal in this case is taken.

The. chief or main question in this case is, Did Mrs. Purnell, or her authorized attorney or agent, for or on her behalf, enter into an agreement with the Union Trust Company, or its agent or agents, impounding her money and creating a trust thereof for the benefit of the bank. W. Graham Boyce, vice president of the Union Trust Company, testified that he said to Mr.