Swift v. Williams

Erving, J., delivered the opinion of the Court. This is a suit in equity brought by E. Calvin Williams and Joseph T. Moore, trustees, under decrees of the Circuit Court of Baltimore City, in the case of Robert M. Bull ²⁴⁴ and others against George W. Bull and others, to recover certain funds of their trust alleged to have been misapplied by I. Parker Veazey, a former trustee, who has been removed, and in whose place Joseph T. Moore has been appointed by order of Court as co-trustee with Mr. Williams. About the main facts in the case there is no dispute. By the first decree in the case .Messrs.

Williams and Yeazey were appointed trustees for the sale of the real estate mentioned in the proceedings. A sale was effected and reported to the Court. Exceptions to that sale were pending, when Mr. Williams, being out of health, and desirous of sailing for Europe so represented to the Court; and for the purpose of “avoiding any delay in consummating said sale and the distribution of the proceeds thereof under a proper account to be stated by the auditor, so far as the same may not be objected tó,” petitioned the Court to allow I. P. Yeazey his co-trustee to receive the purchase money from the purchaser, “and in all respects to act as fully during the absence of the petitioner, as if both were present and acting.” Upon that petition the Circuit Court passed this order: “ Ordered by the Circuit Court for Baltimore City this 14th of July, 1886, upon the'foregoing petition, that I. Parker Yeazey, one of the trustees appointed by the decree heretofore passed in this cause, be and be is hereby authorized to receive from John O. C. Justis, the purchaser at the sale heretofore reported to this Court, the full amount of the purchase money notwithstanding the absence of his co-trustee ; and in all respects to act as fully, in all matters pertaining to said trust as if both were present and acting.” This petition stated that both trustees had qualified, by each giving a separate bond. After the passage of that order, the exceptions were disposed of and the sale was ratified.

The purchaser, John C. C. Justis immediately proceeded to pay for the property he had bought. To do so, Messrs. Justis & ²⁴⁵ Armiger drew a check on the National Mechanics’ Bank for $28,121.55, the amount of the purchase money, which was made payable to the order of John C. O. Justis. This check Justis endorsed “to the order of E. Calvin Williams and I, Parker Veazey, trustees,” adding in this endorsement that it was “in full settlement upon property 192 and 194 W. Baltimore streetand Ybazey conveyed the property to the purchaser.

Although this check was endorsed so as to make it payable to the order of both trustees, Veazey solely endorsed it, “I. Parker Veazey trustee ” “ for deposit,” to the Manufacturers’ National Bank. Thereupon the Manufacturers’ National Bank opened an account with Yeazey, as if sole trustee, and passed the amount of that check to his credit as such trustee. On the same day, (viz., 15th July, 1886,) Veazey who was sole trustee of the Gazette Publishing Company gave his check signed “ I. Parker Yeazey trustee ” on the Manufacturers’ National Bank, to E. O. Hinkley for fourteen thousand one hundred and forty-four dollars and eighty-two cents ($14,144.82,) in payment of a preferred debt due William H. Swift, from Veazcy as trustee of the Gazette Publishing Company, under an order of the Court so awarding. Having received this check, E. O. Hinkley, who was the attorney of Swift, for the collection of that claim, handed Yeazey a release of Swift’s claim against the trust estate of the Gazette Publishing Company.

This last mentioned check was deposited by Hinkley in the Union Bank to the credit of Hinkley & Morris, and the same was entered to their credit on the books of the bank and the bank book of Hinkley & Morris. Both the Justis check and the Hinkley check went through the clearing house at the same time, on the 16th of July, 1886, and the balance due the banks from each other was accordingly ascertained ; but when the Justis check on the Mechanics’ Bank actually came to that bank it was rejected ; and payment was refused by its president, because it was ²⁴⁶ endorsed to the Manufacturers’ Bank by the order of Yeazey trustee alone, whereas the endorsement óf Justis was specially made to the order of E. Calvin Williams and I. Parker Yeazey trustees. The 'Manufacturers’ Bank being so notified, it notified the Union Bank, that Veazey’s check to Hinkley was not good, hut added it would probably be made right during the day. The Union Bank, in turn, notified Hinkley, who, at once, gave his check to cancel the credit he had received for it, and the check of Yeazey was surrendered to him and he took it, and went to look for Yeazey, to get an explanation of the matter from him.

Having found Yeazey, he was assured it was all right, and they together went down the street with the purpose of going to the Manufacturers’ National Bank to see about the matter. On their way, Mr. Veazey saw Mr. Hines, the cashier of that bank, on the street, and said “ that is the man I want to see ” and left Hinkley and went to him. Some conversation was held with Hines, when' he and Yeazey came up to Hinkley, who had not heard their talk. Upon reaching Hinkley, Veazey said to him, in the presence of Hines “ it is all right,” to which Hines assented; and Hinkley was directed, with Hines’ knowledge and assent, to redeposit the check in the Union Bank, which he immediately did.

When he did so, his check for the correction of the supposed erroneous credit to Hinkley & Morris’ account, was returned to him, and no change was made in the bank’s hooks or his; but both were left as when the check was first deposited, as the entries had not as yet been disturbed. The arrangement effected between Hines and Veazey, in that interview which Hinkley did not hear, was that Veazey would alter the signature to the check by appending Mr. Williams’ name; and that the deposit should he so changed as to stand in the name of both trustees, so that the check could be properly charged to that fund. Hines said, he supposed he was bound by the Court’s order ²⁴⁷ to recognize Veazey alone in the endorsement of the check on the Mechanics’ Bank; and he produced the copy of that order, which Veazey left when he deposited the check, to the President of the Mechanics’ Bank; but Mr. Baldwin, its President, did not take the same view and refused to honor the check in that shape. Hines then gave the Mechanics’ Bank a cashier’s check on his bank to cancel the allowance of the Justis check against the Mechanics’ Bank, at the clearing house; and Mr. Justis took a cashier’s check from the Mechanics’ Bank for the «ame amount as the rejected check, which .he deposited in the Manufacturer’s Bank to the. joint credit of Williams and Veazey trustees, and took up the other check.

There was already an account opened in that bank, to the joint credit of Williams and Veazey trustees, by the deposit of $500 on the 4th of June, 1886, and strangely enough, and why, the cashier Hines says he cannot explain, this account was simply entered on the books as void; and the deposit of the 4th of June of $500 was added to the new account opened in the joint names of Williams and Veazey, trustees, by the Justis deposit. Veazey closed ¿also the account in his name as sole trustee by his check to the bank. The Union Bank was notified that the check was all right, and notified Mr. Hinkley, who sent his client his money. When the Manufacturers’ Bank sent word to the Union Bank that Mr. Veazey’s check was all right and good, the Hinkley check from Yeazey was returned by the messenger to the Manufacturers’ Bank where as he had promised Hines he would do, Veazey added the name “E. Calvin Williams, trustee, per I. Parker Veazey,”-as a •drawer of the check to Mr. Hinkley ; so that it could be carried as a formally correct credit to the bank as a disbursement from the Bull trust fund.

In this way, on the sixteenth day of July, 1886, the' misapplication of more than fourteen thousand dollars of the Bull estate trust funds was accomplished, and the same was appropriated ²⁴⁸ to the payment of a claim against the Gazette Publishing Company which had no connection whatever with the Bull, estate. In September, 1886, when Mr. Williams returned from his trip abroad, the breach of trust by his co-trustde was-discovered. He reported the same to the Court-, and Mr.. Veazey was removed and the appellant Moore was appointed in his place.

The trustees were then authorized,, by order of Court, to institute such proceedings as they might be advised were necessary and proper for the recovery of the fund which had been improperly paid away and misapplied. This bill, which was filed against Veazey, the Manufacturers’ National Bank and William H. Swift, alleged the entire insolvency of Veazey, and his inability to make good the funds which he had misappropriated, and charged that both the Manufacturers’ National Bank and Wm. H. Swift, were answerable to the trustees for the amount of the Bull estate which the former had paid out on the check of Veazey, and the latter had received. The decree of the Circuit Court held Veazey and Swift liable, and declared Veazey’s primary liability ; but it dismissed the bill as against the Manufacturers’ National Bank.

Swift appealed from the decree against him, and the trustees appealed from the decree so far as it dismissed the bill as against the Bank. The appeals were heard together, and the views of the respective counsel were presented with great clearness- and force. Having examined all the authorities cited by counsel and very many which were not cited by them, we have reached the conclusion, that the learned Judge who decided the case below erred in dismissing the bill as against the Manufacturers’ National Bank, but properly held the other defendants bound. " So far as the Bull estate is concerned, and its trustees, we think the Manufacturers’ National Bank is equally bound to see the fund of that ²⁴⁹ estate, improperly, appropriated through its aid, made good.

The question in this case is not one of primary or secondary liability, hut whether all who have participated in any degree or way in bringing about the wrong should not he compelled to see it righted, Therefore, for the purposes of this decision it is not necessary to decide, and we do not determine, as between the Manufacturers’ Bank and J. W. Swift, who was most in fault, or on whom the loss must ultimately fall; the rule being as laid down by the Master of the Rolls in Wilson vs. Moore, 1 Mylne & Keene, 146, that “all parties to a breach of trust are equally liable, and there is no primary liability.” It is the well settled law, that whenever a party has obtained money which does not equitably belong to him, and which he cannot in good conscience retain as against the person who is equitably entitled to it, he will be held as holding it for such person who is rightfully entitled to it. If it he trust property, equity impresses the trust upon it in the hands of the transferee, and “ renders him liable to all the remedies which may be proper for enforcing the rights of the beneficiary.” “ This rule forms the protection and safe-guard of the right of beneficiaries in all kinds of trustand enables trust property to he followed into the hands of all subsequent holders, who are not in the position of bona fide purchasers for value without notice. 1 Perry on Trusts, sec. 217, et seq.; 2 Pom. Equity, 620-621 ; George’s Creek Coal and Iron Co. vs. County Comm’rs of Alleghany Co., 59 Md., 259 . Swift cannot he regarded as “ a bona fide purchaser without notice.” He was the creditor of the Gazette Publishing Company, and of its funds in the hands of Veazey its trustee.

As such creditor he received payment from funds belonging to the Bull estate ; and from none belonging to the Publishing Company. The general rule is that an antecedent debt does not form a valuable consideration in a case of this kind, so as to make the creditor, who is paid ²⁵⁰ from wrong funds, a purchaser without notice. 2 Pom. Eq., 622, and authorities cited. Where the property is not “ear marked;” as where the payment is made in money proper, it has been held that the taker without notice gets it discharged of the trust.

Stephens vs. Board of Education, 19 N. Y., 183 ; 2 Pom. Eq., 622. But if that be the law, which we do not decide, this case is free from the difficulty of identification on which it must rest. The payment was .made by check on a fund not liable for the debt.it paid.

That check is traced back .with absolute certainty into the trust account of the Bull trustees, where the Bank credits itself with its payment. That trust money may be followed into any hands where it has gone erroneously was not questioned, as we understood Swift’s counsel; but it was contended that inasmuch as this check was given by Veazey as sole trustee, as he was of the Gazette Company, and was so received by Hinkley for Swift, and deposited in the Union Bank, and in that form was paid to the Union Bank by the Manufacturers’ Bank on which it was drawn; and inasmuch as Hinkley did not know it was not the money of Swift’s debtor in Veazey’s hands, that the Manufacturers’ National Bank must be held as having admitted that Veazey had such money in their hands, though in fact he did not have ; and that in paying that check as drawn, the bank must be held to have paid it with its own money, as if it was really Veazey’s debtor through proper deposit; and as a consequence that Swift cannot be made to return the money so received. As respects this suit, that argument is more ingenious than cogent. If the bank had promptly recognized its mistake in undesignedly, yet culpably,' aiding in the breach of trust, and had restored the money to the Bull trust, and this was its suit against Swift for reimbursement; or, if Swift had repaid the money and was suing the bank, that argument might be.regarded as more applicable and more forcible, and then the question also would arise whether ²⁵¹ Hinkley as the attorney of Swift had enough information to put him on inquiry and charge Swift with notice.

But as this is a suit for money which has been paid to Swift from