86 Md. 400 | Md. | 1897
delivered the opinion of the Court.
These proceedings had their origin in a bill filed by the appellants against the appellees in the Circuit Court of Bal
The ultimate inquiry is, whether under the circumstances stated the bank is liable to make good to the new trustees the amounts of these two checks. In addition there are subordinate questions arising by way of defence that will be disposed of after the main one has been dealt with.
There can be no dispute that as a general principle all persons who knowingly participate or aid in committing a breach of trust are responsible for the money and may be compelled to replace the fund which they have been instrumental in diverting. Every violation by a trustee of a duty which equity lays upon him, whether wilful and fraudulent or done through negligence, or arising through mere oversight or forgetfulness, is a breach of trust. 2 Pom Eq. sec. 1079. There is in such instances no primary or secondary liability as respects the parties guilty of, or participating in the breach of trust; because all are equally amenable. That a breach of trust was committed by Clagett does not admit of a doubt. The defaulting trustee was removed because he was a defaulter. He unquestionably received the
At the outset it ought to be noted that there is a marked difference between the phraseology and the legal effect of the two checks already set forth. The one is payable to Scott, cashier, for deposit to the credit of Clagett personally—that is, not in his capacity as trustee—though there is
It is true, undoubtedly, that a bank is bound to honor the checks of its customer so long as he has funds on deposit to his credit, unless such funds are intercepted by a garnishment or other like process, or are held under the bank’s right of set-off. It is equally true that whenever money is placed in bank on deposit and the bank’s officers are unaware that the fund does not belong to the person depositing it, the bank upon paying the fund out on the depositor’s check will be free from liability even though it should afterwards turn out that the fund in reality belonged to some one else than the individual who deposited it. It is immaterial, so far as respects the duty of the bank to the depositor, in what capacity the depositor holds or possesses the fund which he places on deposit. The obligation of the bank is simply to keep the fund safely and to return it to the proper person or to pay it to his order. If it be deposited by one as trustee, the depositor as trustee has the right to withdraw it, and the bank, in the absence of knowledge t>r notice to the contrary, would be bound to assume that the trustee would appropriate the money, when drawn, to a proper use. Any other rule would throw upon a bank the duty of inquiring as to the appropriation made of every fund deposited by a trustee or other like fiduciary ; and the imposition of such a duty would practically put an end to the banking business, because no bank could possibly conduct business if, without fault on its part, it were held accountable for the misconduct or malversation of its depositors who
As the bank, then, would not be responsible for the use made of the trust funds by the trustee unless it knowingly participated in a breach of trust or profited by the fraud ; do the checks, which are, as we have said, the only evidence in the record on this branch of the case, show that the bank is liable ? As respects the first check representing the proceeds of the foreclosure of the Beall mortgage, we are of opinion that there is no liability on the part of the bank. It will be remembered that this particular check was not made payable to Clagett, as trustee, nor, being payable to Scott, cashier, were the proceeds directed to be placed to the credit of Clagett, trustee. In placing the proceeds to the individual credit of Clagett the bank did just precisely the thing it was directed on the face of the check to do. In doing this it violated no duty to any one, unless the addition of the words “ being the balance of purchase money due him as trustee from John R. Coale,” controlled the explicit di
Unless we give to the memorandum made by Mr. Stanley for his own convenience on the first check, an effect which the Supreme Court declined to give to a much more significant memorandum contained in the checks delivered to Dodge, we must hold that the Mechanics’ Bank by carrying to the personal credit of Clagett the proceeds of the check representing the avails of the Beall foreclosure, did no act that made it liable to the Bowling trust estate for the misappropriation of those particular proceeds by the deposed trustee. And this is so because the memorandum could not operate to qualify the right of Clagett to receive the funds individually and the bank did no wrong in placing them to his credit in the capacity in which he was obviously authorized to receive them. The bank having therefore rightfully entered the proceeds of this first check to Clagett’s individual credit, he was entitled to draw them out so far as the bank was concerned, and the bank was under no obligation and had no authority to interfere with him in doing so.
Precisely for the reasons that the bank is not responsible for the misappropriation of the proceeds of the first check it is liable to the new trustees for the misapplication by Clagett of the funds collected by it on the second check. The
It has, however, been insisted that Clagett knowing that the bank had wrongfully placed trust funds to his individual credit, ratified that wrongful act by his subsequent conduct, and as his ratification was equivalent to a prior direction to do what was done, the bank is not answerable. Both Clagett and the bank participated in the wrong with respect to the proceeds of the Duckett mortgage. Because they both did wrong, they are both accountable for it. But the contention is, if one of two wrongdoers who reaps the fruits of the joint wrongful act, ratifies what his accomplice has done, that accomplice is thereby released and exculpated. This, of course, is not the bald form in which the rather ingenious argument advanced to support the contention is presented, but reduced to its last analysis it comes to that startling proposition. The wrong was done, not to the trustee, but to the trust estate. As between the bank and the trustee his ratification of its act might bind him, but upon what principle can such a ratification bind the beneficiaries of the trust, who have been injured by the joint breach of trust on the part of the bank and the trustee ? No ratification by the trustee of the bank’s participation in the breach of trust can possibly affect in any way the bank’s accountability to the new trustees.
As to the Statute of Limitations it is only necessary to say that a participant in a breach of trust cannot, any more than can the trustee himself, invoke that defence. 2 Pom. Eq. sec. 1080. Even if the statute applied, to be availed of as a defence it must be invoked by either a plea or an answer. Allender v. Vestry Trinity Ch., 3 Gill, 166. The
We have made no allusion to a line of cases of which Third Nat. Bk. v. Lange, 51 Md. 138; Marbury v. Ehlen, 72 Md. 206; and Stewart v. Fire Ins. Co., 53 Mo. 564, are illustrations ; because the principles applied in that group of decisions have no relation to the questions involved on the record now befóte us. The sale of a promissory note payable to a trustee—and therefore a non-negotiable note—or the transfer of a certificate of stock standing in the name of an individual as trustee, is quite a different thing from the payment of a check drawn by a trustee on an account standing to his credit as trustee in a bank. Where certificates of stock are held in trust and on their face indicate that they are so held, the bank or other corporation is bound before suffering them to be transferred on the books of the corporation, to know, or at least to use proper diligence to ascertain, that the trustee has authority to make the transfer; whereas in the case of a deposit the relation of debtor and creditor is created in the capacity in which the deposit is made, and the bank’s duty is to pay out the fund to or upon the order of the person making the deposit when the check is properly signed, without looking to the application of the fund ; and it incurs no responsibility by so doing unless it knowingly participates in a breach of trust or itself reaps the fruit thereof.
We hold, then, on the entire case, that the bank is accountable for the sum of two thousand and twenty-four dollars and thirty cents—the amount of the check dated September 17th, 1892—with interest thereon from the date of the deposit of the proceeds to the credit of Clagett’s individual
The decree dismissing the bill of complaint will accordingly be reversed, and the cause will be remanded that a new decree may be passed conforming to this opinion.
Decree reversed with costs above and below and cause remanded.