29 N.J. Eq. 98 | New York Court of Chancery | 1878
The bill is filed by William K. G-aston and his wife and children, against William G-. Steele, trustee, and the American Exchange National Bank, E. Wilson, cashier of that bank, and the Camden and Amboy Railroad and Transportation and Delaware .and Raritan Canal Companies. The
Though the answer of the bank alleges that on the making of the loan of $12,000 to Steele, and on the making of former loans by the bank to him on the security of the same shares, he represented to the bank, and assured it and its president and cashier, that he was fully authorized by the trust under which he held the shares to raise money on a pledge or sale thereof from time to time as the purposes of the trust might require, and that the money which he was borrowing from the bank was needed by him, and was about to be used by him for the purposes of the trust, it appears from the testimony of the assistant cashier, Clark, who was sworn as a witness in behalf of the bank, that there was no representation or statement whatever of that kind made by him to the bank, or any of its officers, when the loan of $12,000 was made, and there is no proof that those or any such representations were made by him at any time.
Clark testifies, speaking of the loan of $12,000, that Mr. Steele came to the bank and requested a loan from the bank of $12,000; that he made the request of Mr. Wilson, the cashier, offering him the certificates of the one hundred and twenty shares of stock, and that the loan was made to him, and the amount passed to his credit in the bank. He further says that they (the bank) supposed that the transaction was perfectly regular. He adds, that he had no conversation with Steele on his power to pledge the stock. No attempt whatever is made to sustain the statement of the answer in respect to the alleged representations of Steele at the time of making loans on the pledge of the stock. On the other hand, the evidence is that the transaction was, and was understood to be, on the individual account of Mr. Steele. The cashier’s check to him for the money was to his order, and was endorsed by him in his individual
The certificate for the one hundred shares was in the name of “ James Campbell, trustee for William K. Gaston,” and the stock still stood in that name on the books of the company. Although there was endorsed on the certificate a memorandum to the effect that the stock had been transferred on the books of the company to W. G. Steele, trustee, it was evident from inspection that the memorandum was not official, and did not purport to be so, and was entitled to no credit. It was not signed, but the place for the signature of the transfer agent was blank. Upon its face the certificate declared that the shares were transferable on the books of the company only by James Campbell, trustee, for William K. Gaston, or his legal representatives. The bank did not require Mr. Steele to produce even the evidence of his legal title to that stock. The other shares stood in the name óf Mr. Steele on the books of the company, but- it was as trustee. Had the bank made inquiry as to his title and his power over the stock, it would have found that by the order by which he was appointed it -was ordered that the certificates of the stock held by him in trust, of which the one hundred shares held by James Campbell, at his death, were part, should be endorsed by Mr. Steele with these words: “This stock is not to be transferred without an order of the chancellor of New Jer
Said the court, in Shaw v. Spencer, 100 Mass. 382, 389: “ Where one known to be a trustee is found pledging that which is known to be trust property to secure a debt due from a firm of which he is a member, the act is one prima facie unauthorized and unlawful, and it is the duty of him who takes such security to ascertain whether the trustee has the right to give it. The appropriation of corporate stock held in trust as collateral for the trustee’s own debts, or a debt which he owes jointly with others, is a transaction so far beyond the ordinary scope of a trustee’s authority, and out of the common course of business, as to be in itself a suspicious circumstance, imposing upon the creditor the duty of inquiry. This would hardly be controverted in a case where the stock was held by A B, trustee for C D. But the effect of the word ‘trustee’ alone is the same. It means trustee for some one whose naine is not disclosed; and there is no greater reason for assuming that a trustee is authorized to pledge for his own debts the property of an unnamed cestui que trust, than the property of one whose name is known; in either case it is highly improbable that the right exists.”
The cases in reference to pledges by executors and administrators are not in point. The distinction between sales of stock by executors and administrators, and such sales by
The case of Duncan v. Jaudon, 15 Wall. 165, is exactly in point. There the trustee held shares of the Delaware and Raritan Canal Company as trustee for Mrs. Mary T. B. Jaudon, as appeared on the face of the certificates, tie pledged them with Duncan, Sherman & Co., as security for a loan for his individual benefit. Said the court: “ The loans were for no purpose connected with the trust, but for Jaudon’s (the trustee’s) own benefit, and the face of the papers given as- collateral security for the debts thus incurred informed the parties dealing with him that he held the stock as trustee for Mrs. Mary T. B. Jaudon, and inquiry would have revealed the fact that the use to which the stock was put was unauthorized. The duty of making such inquiry was imposed on these parties, for it is out of the common course of business to take corporate stock held in trust as security for the trustee’s own debt. The party taking such stock on pledge deals. with it at his peril, for there is no presumption of a right to sell it, as there is in the case of an executor. In the former case the property is held for custody, in the latter for administration.”
Steele is insolvent. In this case one of two innocent parties must suffer, the bank or the cestuis que trust, and it is but just that the loss should fall on the former, which might,* by the exercise of reasonable care, have protected itself. In such cases reasonable care is a duty. The trustee proposed to borrow money on his individual account for his own use, and to secure the repayment of it by the pledge of stock, which on its face bore evidence that it was not his own, but the property of some one else, for whom he held it in a fiduciary capacity, and that he had no right to pledge it for his own debt. The bank, without a question even to him, so far as appears, as to his right so to pledge the stock, and