63 N.J. Eq. 530 | New York Court of Chancery | 1902
The complainant, Clifford K. Jeffray, for whom Timothy T. Dwight, now deceased, held funds in trust, files this bill against Dwight’s administrator and Thomas H. Towar for an accounting and. for the-recovery from Towar of a portion of the trust .funds, or the proceeds thereof, which are alleged to be retained by him.
Towar, from the year 1884 to the year 1889, inclusive, carried on the business of a stock broker in New York City, and during those years Timothy T. Dwight was one of his customers. Towar .carried two accounts with Dwight on his books, one headed “T. T. Dwight,” the other “T. T. Dwight, Trustee.”
The main dispute in the case is whether the defendant has a right to set off the balance due to him on the individual account .against the balance due from him on the trustee account. The two accounts were opened at the same time,, and it was claimed by defendant, in his answer, that, at the time of opening the two accounts, there was an express statement by Dwight to him that any funds or securities in either account should be a margin -or security for the other account, and that both funds were Dwight’s own funds, and it was further claimed that all the .subsequent transactions with Dwight were had in reliance on this statement. Hpon the argument it has not been claimed that proof of any such statement or of any express agreement 'has been made, but it is claimed that the evidence in relation to the circumstances of opening the accounts and to the dealings between the parties, during the running of the. accounts, shows satisfactorily that there was such an agreement that the accounts -were held as margin for each other, and that this agreement was
“Dwight said that Mr. Larned was going out of business; that he had an account there with some stocks and bonds in it; could I take the stocks over and carry them for him, to which I said E could and would be glad to do so, and did so.”
“I was requested to open two accounts, one for Timothy T. Dwight .and one for Timothy T„ Dwight, Trustee, which I did, charging Mr. Dwight with some $16,000, and crediting Mr. Dwight, Trustee, with $7,000, giving Larned & Company a check for the difference.”
This check, dated April 1st, 1884, was given by Towar to the -order of Larned for $9,333.98, and upon the receipt of this check the securities carried by Larned for Dwight’s account were delivered to Towar’s agent, who delivered the check. Towar .at once opened on his books two accounts, the “T. T. Dwight” .account, in which the first entry was a charge
100 Pullman,
“To Cash 100 Ont. & West.
100 Canton,
from B. P. L., Jr., $16,371.48.”
In this amount was included $37.50 as commission on the ■purchase or taking over of the stock. On the same day another account with “T. T. Dwight, Trustee” was opened on the books, with a credit of $7,000. Towar had been at one time a partner of Larned’s, and Dwight had then kept an account there, but Towar says that, prior to the time when he had the transaction with him in regard to opening an account, he had no knowledge of any account being kept with Larned. There is no evidence that Towar knew Dwight was carrying two separate accounts with Larned. So far as Towar’s books directly show, the two accounts have been kept entirely separate, and have no connection with each other. Dwight’s individual account was never .a closed account, from the time it was first opened up to the time of his death, in July, 1899, and, at that date, the amount clue to Towar on this account was over $37,000, arising on the balances due upon purchases and sales of stock by Towar for Dwight and interest. The stocks purchased were (as appears by Towar’s books and the accounts rendered to Dwight) held as security for his personal account, and at the time of Dwight’s death the value of these stocks was only $11,000, leaving a deficiency of about $26,000. Dwight died insolvent. The trustee
*535 Jan. 20, 1886........Debit $17,134.96 Margin $527.54
April 1, “ “ 11,614.65 “ 735.35
May 3, “ “ 20,114.65 Shortage 1,114.65
July 1, “ “ 20,634.28 Margin 1,553.22
Oct. 1, “ “ 16,087.16 “ 5,375.34
showing that during the whole of this time the securities belonging to the individual account and the personal security of Dwight were the only securities for the individual indebtedness. On November 12th, 1886, the trustee account was again opened by a cash deposit to its credit of $1,200, which remained on interest to January 1st, 1887. Another deposit of $10,000 cash was credited on January 29th, 1887, and, after the purchase of about $4,000 worth of railroad bonds, which were delivered at once, the balance of the account ($7,338.95) was drawn out on February 4th, 1887, and the trustee account was entirely closed for the second time. The status of the individual account, as rendered during this second running of the account, with the margin of stock values, was as follows:
Jan. 1, 1887........Debit $15,805.13 Margin $1,419.87
Feb. 2, “ ........ “ 16,005.13 “ 1,294.87
On February 19th the trustee account was again opened by a cash deposit of $750, the indebtedness on Dwight’s individual account being at this time $18,055.13, and the margin $1,944.87, or $700 more than when the account was closed on February 4th, 1887. On April 27th, 1887, 'there was the further large deposit of $21,561.47. The proofs- satisfactorily establish that these two deposits, together with a subsequent deposit of $98.54, made on December 1st, 1887, were of funds which Dwight held in trust for the complainant, Jeffray. These funds belonged to Jeifray, who came of age in August, 1886, under the will of his grandfather, Timothy Dwight, of whom T. T. Dwight was the surviving executor and trustee. Nnder an agreement with Jéifray, made shortly after he came of age, and which was reduced to writing and delivered in April or May, 1887, these funds were to be held for Jeifray and invested by Dwight, the income to be paid to Jeifray during their joint lives, and on Dwight’s death the title to the principal became vested in
From all the evidence in the ease relating to the circumstances of the opening of the two accounts in April, 1884, and of the dealings of the parties in relation to them up to the time when the trustee account was opened for the third time, on February 18th, 1897, and complainant’s money deposited therein, I conclude that no agreement, either express or implied, for the set-off of the two accounts, or that the cash balance in the trustee account should be held-as a margin or security for the individual account, has been made out as existing at that time. On the contrary, the accounts during that interval were treated as entirely independent accounts, and the trustee account was closed out and reopened without any apparent connection with the margin or the individual account. The strongest evidence, from the accounts themselves,’ that the trustee account was not to keep good the individual account is that, on January 20th, 1886, when the indebtedness on the individual account was $17,134.96, and the margin was only $527.54, the securities belonging to the trustee account, then worth $3,782, and which had been held since July, 1885, were delivered to the trustee, and that no deposits, of either cash or securities, to the trust account were made until November 12th, 188G, although in the meantime and on May 3d, 1886, there was a shortage on margin of $1,114.65. The second opening and closing of the trustee account and its last reopening do not seem, on the face of them, to have any connection with the state of the margin on the individual ac
These bonds so purchased were all delivered to Dwight on May 2d, 1887, and he receipted for them on the account in the books as “T. T. Dwight, trustee.” On April 1st the individual debit was over $22,500, but the stock margin was over ’$1,800 (nearly ten per cent.), and it does not appear that there was any shortage up to the time of the delivery of the bonds. The immediate investment of the trustee account fund in securities of this character and their delivery to Dwight, on his receipt as trustee, taken in connection with the circumstances above re
' I conclude, as the result of all the evidence in the case, that the defendant Towar did have notice of the character of the fund in the trustee account, and that it was held by Dwight as trustee and in a fiduciary capacity. ' Knowledge or notice of the. identity of the persons fox whom the trustee held the trust fund, at the time the individual debt was accruing, was not necessary in order to prevent the defendant from holding the trust fund for his personal benefit.
So far therefore as the funds in the trust account have been identified or traced as trust funds, no right of set-off exists.
“I recall the occasion when the Ohippewa Falls bond was brought in; I had asked him for more margin and he brought it in as additional margin, and nothing was said as to what account it was to be put in.”
Dpon the day the bond was brought in, however (October 22d, 1895), a foreign draft was purchased by Towar for $782.40, payable to his order, and was endorsed by Towar personally. Exhibit G 15. Above the signature is the endorsement “Pay T. T. Dwight, Trustee, or order,” in Dwight’s handwriting. Whether this endorsement was made before or after Towar’s signature does not appear, but the trustee account was on that day charged with $782.40 and the bond itself credited to the personal account. This foreign draft was sent by Dwight to Jeffray, and I think the only conclusion to be drawn is that, on that day, the bond was brought in for the purpose of securing Towar for purchasing this draft. Towar had not advanced any cash or paid any drafts on Dwight’s personal account since May 6th, 1890, nor had Dwight, since that date, made any payments or deposits to the credit of that account; and since September 18th, 1891, no purchase of stock on this account had been made. The fact that the bond was delivered in order to secure the
The only remaining question is that of interest. The balance now appearing to be due on the trustee account results, to-some extent, from the compounding of interest on the balances, with quarterly or semi-annual rests, up to January, 1897, from which time the rests are annual. As between Dwight himself and Towar, such compounding might not be unauthorized, because it was evidently due to the fact that interest on the per