109 N.E. 580 | NY | 1915
This is an action in equity for the purpose of adjudging a trust to exist in favor of the plaintiff and for an accounting and that the plaintiff's claim be preferred over the claims of the general creditors of the insolvent Carnegie Trust Company. The predecessor of the plaintiff was the Van Norden Trust Company, a corporation duly organized and existing under and by virtue of the Banking Laws of the state of New York. On April 7th, 1910, Warner Van Norden and Warner M. Van Norden and persons acting for them owned and controlled 1,740 shares of the capital stock of the Nineteenth Ward Bank and 1,260 shares of the stock of the Twelfth Ward Bank. On that day the Van Nordens gave to William J. Cummins an option to purchase within ten days thereafter the said shares of stock of the Nineteenth Ward Bank and the Twelfth Ward Bank. On April 19th, 1910, and during that month, there were loans of the Van Nordens and their friends in certain banks and trust companies in the city of New York aggregating $575,000. These loans were secured by 1,725 shares of the stock of the Nineteenth Ward Bank and 1,259 shares of the stock of the Twelfth Ward Bank. The Van Nordens were in bad financial repute and their loans were in danger of being called by the makers. If these loans had been called a prejudicial effect would be produced on the Van Norden Trust Company, the Nineteenth Ward Bank and the Twelfth Ward Bank. This matter was the subject of discussion at the meeting of the directors of the Van Norden Trust Company. As a result of this discussion it was suggested at such meeting on April 19th, 1910, by William J. Cummins and others that the Van Norden Trust Company advance sufficient money to take *479 up a portion of the loans of the Van Nordens. The suggestion was adopted and a resolution was passed approving applications for loans to Condon for $75,000, Reichmann for $60,000, Moore, Jr., for $60,000, and Crabbs for $60,000. The intent and purpose of making these loans to these individuals was that the money loaned should be used for the purpose of purchasing on behalf of the Van Norden Trust Company the stock of the Nineteenth Ward Bank and the Twelfth Ward Bank. The notes of Condon, Reichmann and Moore aggregating $195,000 were on April 21st, 1910, executed each payable on demand and delivered to the Van Norden Trust Company. The Van Norden Trust Company delivered the proceeds of these notes to the Carnegie Trust Company and an instrument dated April 20th, 1910, was signed by the vice-president of the Carnegie Trust Company and delivered to the president of the Van Norden Trust Company. That instrument plays an important part in this case and is set forth in full. It is as follows:
"NEW YORK, April 20, 1910.
"Mr. WATKINS CROCKETT, President, "Van Norden Trust Company, "Fifth Avenue, New York City:
"DEAR SIR. — We acknowledge the receipt hereof from the Van Norden Trust Company of one hundred and ninety-five thousand dollars ($195,000), the proceeds of the following notes:
Demand note of Martin J. Condon ....... $75,000.00 Demand note of Joseph B. Reichmann .... 60,000.00 Demand note of Charles A. Moore, Jr. .. 60,000.00
"The above amount to be used by us towards the payment of Carnegie Trust Company stock at $1.75; Nineteenth Ward Bank stock at $2.50; Twelfth Ward Bank stock at $1.00.
"We agree to hold in trust for you, or any trustee named by you, the above collaterals as paid for by us at *480 prices mentioned above. Whatever part of the above amount is not employed in the purchase of the above stocks, shall be subject to your order at any time.
"Yours very truly, "(Signed) R.L. SMITH, Vice-President."
The figures "$1.75," "$2.50," and "$1.00" in the agreement of April 20, 1910, were intended by the parties to mean $175, $250 and $100 respectively. This instrument was delivered on April 21st, 1910, to the Van Norden Trust Company together with the promissory notes of Reichmann and Moore and on the day following the promissory note of Condon, and the face value of these notes ($195,000) was paid by check given by the Van Norden Trust Company to the Carnegie Trust Company. The court has found that "It was agreed between the Van Norden Trust Company and the officers or agents of said company who acted in its behalf, and by the Carnegie Trust Company and the officers or agents of said company who acted in its behalf, that the proceeds of said loans to Condon, Reichmann and Moore should be paid in trust to a trustee who should hold the same as collateral security to said loans, with power in said trustee to purchase out of said trust fund the stocks described in said agreement of April 20, 1910, which stocks, if and when so purchased, were likewise to be held in trust by said trustee as collateral security for said loans.
"It was agreed between the Van Norden Trust Company and the officers or agents of said company who acted in its behalf, and by the Carnegie Trust Company and the officers or agents of said company who acted in its behalf, that the said loans to Martin J. Condon, Joseph B. Reichmann and Charles A. Moore, Jr., should be secured loans."
The court has found that the Carnegie Trust Company on April 21 or 22, 1910, disposed of the fund of *481
$195,000, referred to in the agreement of April 20th, 1910, in violation of and contrary to the terms and provisions of that agreement. The manner in which the Carnegie Trust Company violated the provisions of the agreement of April 20th, 1910, was that it used no part of the proceeds of the notes of Condon, Reichmann and Moore, the $195,000 already referred to, in the purchase of the shares of stock of the Carnegie Trust Company, the Nineteenth Ward Bank and the Twelfth Ward Bank. No stock of the Nineteenth Ward Bank, the Twelfth Ward Bank or the Carnegie Trust Company was ever purchased by the Carnegie Trust Company to be held for the benefit of the Van Norden Trust Company and the Carnegie Trust Company is not now the holder of any such stock. The stocks referred to in the option agreement of April 7th, 1910, between the Van Nordens and Cummins were the same shares of stock of the Nineteenth Ward Bank and the Twelfth Ward Bank which were referred to at the meeting of the directors on April 19th, 1910, where it was decided that the Van Norden Trust Company would advance money to take up the various loans of the Van Nordens. Subsequently and during August, September, October and November, 1910, it appears that Bradley Martin as president of the Nineteenth Ward Bank issued certificates of stock of that bank to William J. Cummins and his friends in lieu of the shares that theretofore had stood in the names of the Van Nordens and which was the same stock that Cummins had purchased from the Van Nordens under the option agreement of April 7th, 1910. It clearly appears that William J. Cummins was the dominant and controlling factor in the Carnegie Trust Company and that he and his associate directors, Condon and Moore, owned 2,550 shares of its capital stock. It also appears that said Cummins was generally active in and about the affairs and business of the Carnegie Trust Company as its representative and agent on or about April 21st, 1910, and for *482
some time prior thereto and subsequent thereto until January 7th, 1911, when the Carnegie Trust Company was closed by the superintendent of banks. On January 7th, 1911, Reichmann and Moore were adjudicated bankrupts and subsequently Condon was adjudicated a bankrupt. No part of the sum of $195,000 paid by the Van Norden Trust Company to the Carnegie Trust Company has been repaid. On April 14th, 1911, this plaintiff as successor of the Van Norden Trust Company filed with the superintendent of banks, then in control of the Carnegie Trust Company, a claim demanding that the Carnegie Trust Company account to it for the said sum of $195,000. Upon these complicated facts three questions of law are presented. First, was a trust created under the letter of April 20th, 1910? Second, if so, was the plaintiff entitled to a preference under the statute? Third,
can the plaintiff recover in this action if it is not entitled to a preference? The claim urged below that even if there is no statutory preference the plaintiff is entitled in equity to an equitable lien and the establishment of a trust, is obviously untenable as there is no basis for holding that any equitable lien attached and the funds of the Van Norden Trust Company are incapable of being traced. (Matter of Cavin v. Gleason,
"Section 190. No security required: trust fund debts preferred. No bond or other security, except as hereinafter provided, shall be required from any such corporation for or in respect to any trust, nor when appointed executor, administrator, guardian, trustee, receiver, committee or depositary. All investments of money received by any such corporation, and by any trust company chartered by special act, prior to May eighteenth, 1892, in either of such characters shall be at its sole risk and for all losses of such money the capital stock, property and effects of the corporation shall be absolutely liable, unless the investments are such as the courts recognize as proper when made by an individual acting as trustee, executor, administrator, guardian, receiver, committee or depositary, or such as are permitted in and by the instrument or words creating or defining the trust. If dissolved by the legislature or the court, or otherwise, the debts due from the corporation as such executor, administrator, guardian, trustee, committee or depositary shall have the preference. The court or officer making such appointment may, upon proper application, require any corporation which shall have been so appointed, to give such security as to the court or officer shall seem proper, or upon failure of such corporation to give security as required, may remove such corporation from and revoke such appointment. Such court or officer may make orders respecting such trusts and require the corporation to render all accounts which such court or officer might lawfully require if such executor, administrator, guardian, trustee, receiver, committee or depositary were a natural person. Whenever any *485 such corporation shall be designated by the comptroller of the State of New York as a depositary for funds and moneys paid into court, before receiving any such deposit, it shall give to the people of the state a bond in the form and manner, as provided by section forty-four of this chapter." (Thus amended by L. 1909, ch. 240, section 3, in effect April 22, 1909.)
The Appellate Division held that the trust created was not a preferred debt under this statute. We are urged to disapprove this interpretation. It is said that the words "in either of such characters" refer to voluntary trusteeships and relationships covered by the words "executor, administrator, guardian, trustee, receiver, committee or depositary." In support of this argument it is claimed that the use of the words "in either of such characters" instead of the words "in any of such characters" is significant. When the phrase used in the statute is considered in connection with its context in this section and the section preceding, it is not susceptible of the interpretation which the appellants would have us place upon it. So considered it plainly has reference to a trust company organized under this chapter (sections 187 and 188), and to any trust company chartered by special act, and provides that no bond need be given by the corporation accepting the trust "in either of such characters." It is claimed that to limit the language of section 190 to trustees judicially appointed or those specifically mentioned in the statute, fails to give effect to the phrase "for or in respect to any trust," and the words at the end of the second sentence "such as are permitted in and by the instrument or words creating or defining the trust." These general expressions detached from their context do not reveal the purpose of the statute as a whole. Thus in Henkel v. Carnegie Trust Co. (
The other question presented for determination is whether the plaintiff may have a money judgment in this action, although it has failed to establish that it is entitled to a preference either by statute or in equity and notwithstanding the fact that the Carnegie Trust Company did not buy any stock with the money that the Van Norden Trust Company transmitted to it. We think that the plaintiff is entitled to such a judgment. The plaintiff established that the Carnegie Trust Company took the money which it received from the Van Norden Trust Company under the trust agreement expressed in the letter of April 20th, 1910. As there was a trust, those for whose benefit the trust was created have the *488 right to an accounting. Neither the fact that the plaintiff is not entitled to a preference, nor the fact that only a money judgment can result from the accounting, deprives the cestui quetrust of this right.
It follows that the judgment appealed from should be affirmed, without costs.
WILLARD BARTLETT, Ch. J., CHASE, CUDDEBACK, HOGAN and MILLER, JJ., concur; HISCOCK, J., not sitting.
Judgment affirmed.